The truth of the matter is your down payment effects everything and it says a lot about the potential buyer. The down payment is the difference between the purchase price and the mortgaged amount. Lenders recognize the importance of the size of the down payment. As the down payment increases, the lender's risk decreases. The size of the down payment is one of the most important factors in determines whether a loan will be approved.

    With large down payments there is less need to worry about the borrower's qualifications. Few borrowers are willing to allow a loan to default and lose a large equity. If a buyer purchases a home at $150,000 and made a down payment of $30,000, you would do everything possible to maintain the payments. If it became impossible to keep up the payments, you would sell the house. On way or the other, you would do what you had to do to protect your $30,000.

    On the other hand, if you had purchased the same home with little or no down payment, you might now be as motivated to main the payments. If you have no money invested in the property, you really have nothing to lose except your credit rating. You could easily decide to let the lender foreclose. 

     Your choice of loan programs is limited according to the amount of down payment you can afford. Money gifted to a buyer for the down payment, can also limit the buyer as to the choice of loan program that is going to be available. If a buyer asks for the seller or lender to pay for closing costs can also affect the choice of loan program, even if the buyer has a large down payment. On Conventional loans, 10-20 percent of the sales price is paid by the buyer at the time of purchase. FHA loans,which are Government-Backed loans require at least a 3.5% down payment.

      The amount of money saved lets the lender know how much of a risk it is to lend money to you. Your savings are accumulated funds not needed at the time that they are earned. Savings represent surplus money put aside for future use. I can not stress enough.....SAVINGS is spending less than one earns.

Helpful Tips

• Show additional assets not needed for down payment, also know as reserves, this represents an amount of money the lender will require a buyer to hold in their bank account at the time of closing. This amounts to 3 months of the buyer's monthly mortgage.
• If you can document the funds came from your personal savings, the lender is more confident of your strength as a borrower. Being able to show a SAVINGS history indicates a level of stability.
• It is extremely important to completely document the paper trail for any funds used for down payment and closing costs. For example, for checking and savings accounts, use most recent bank statements. If statements show any large deposits the lender will ask you to explain them and document their source.

Some ideas on how to obtain a down payment:

1. Open a savings account for purchasing a house. Commit to a minimum amount every pay period even if it is $20. Set up this amount for automatic withdrawal through your company's payroll. Strive to save enough to put 20 percent down as your down payment. If you put down less than 20 percent many lenders require buyers to have private mortgage insurance (this will add to your monthly mortgage payment). In addition to needing a down payment, closing costs (title insurance and mortgage fees) also need to be accounted for. 
2. Look for other sources of funds. For instance, if you have a Roth Individual Retirement Account (IRA) and are a first-time home-buyer, you have access to $10,000 of these funds penalty-free under certain conditions. Talk to an accountant regarding the pros and cons of taking a loan out or withdrawing funds from your account.  
3. Nearly 23 percent of first-time home-buyers receive gifts from relatives and friends.  

 In today's market, having a down payment is essential. It shows, a seller that you are serious about purchasing the house and it shows a lender that you can handle the responsibility. A down payment reduces the amount that needs to be financed and gives you instant equity. So, in essence the money returns back to you.