You already know the down payment is a big deal when it comes to buying a house. For many buyers, making a down payment is a financial challenge, but it also comes with benefits, such as reduced interest rates and lower monthly mortgage payments.
But what does a down payment mean to sellers? Does a higher down payment make your offer stronger?
If you flip your perspective and look at the down payment from the seller’s side of the table , you’ll have a much better understanding of how to use your down payment as a tool to make the sale easier.
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Having more funds available for a down payment offers you more options and more purchasing power. Down payment assistance gives you those funds, those options, and that purchasing power.
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Disclaimer: This article is for informational purposes only and should not be considered as legal or financial advice. Please consult an attorney, mortgage lender, or CPA for guidance on your specific situation.
Does a higher down payment make your offer stronger?
Generally, yes. A down payment makes your offer stronger. In a tight housing market, sellers get a lot of offers, many of them above the asking price. A higher down payment signals to the seller that you’re more financially qualified and therefore less likely to have issues getting a loan and closing the sale.
Many prospective buyers submit a mortgage per-approval letter with their initial offer, but pre-approval doesn’t guarantee the loan will go through. It’s not uncommon for sales to fall through because the buyer can’t get the loan they need.
You know that your finances are in order and you’ll ultimately qualify for a home loan, but the seller doesn’t know that. A large down payment gives the seller more confidence in accepting your offer because it shows them some evidence that you’re financially prepared to make the purchase.
Additionally, if you have cash on hand to make a larger down payment, you can put some of that money up as an initial deposit, AKA earnest money, when you make an offer. This shows the seller that you’re committed to making the purchase.
However, making a high down payment isn’t the only way to increase the strength of your offer.
More strategies to strengthen your offer
Although your down payment counts for a lot, there’s more that goes into a house sale. There are other levers you can pull besides offering a larger down payment. You can actually give yourself a solid edge in buying a house if you know how to work these levers.
Be smart about your offer price and be flexible, if you can
When a homeowner puts their house up for sale, they establish an asking price. However, that doesn’t mean your offer must match that asking price. Your offer can be higher or lower than the asking price.
In tight housing markets, when sellers are getting a lot of offers, you’ll likely have to offer the asking price or potentially more than the asking price to make your offer competitive.
However, you can go one step further and add an escalation clause to your offer. An escalation clause just means your offer will automatically increase if the seller gets other offers which are higher than yours.
This can make your offer stronger, especially if the offers which were higher than yours were less favorable in other ways. Just make sure you establish a price limit with your real estate agent so your offer doesn’t get escalated to more than you can afford.
Get pre-qualified
As we mentioned before, you can get pre-qualified with mortgage lenders prior to making an offer. This means a lender has assessed your finances and tentatively agreed to give you a loan.
A large down payment signals you are in a strong financial position, but a pre-qualification shows your financial situation has been vetted by the mortgage lender. It’s even more assurance for the seller.
Approach the sale as a comprehensive negotiation
One of the things people forget when they buy a house is that it’s not just about the money. Sellers have a lot of other concerns. They have timelines for when they need the sale to close. They have the logistics of moving to worry about. The list goes on.
If you take the time to understand the other issues the seller must contend with, you can put things in your offer to help them deal with these problems.
For instance, if the seller is moving across the country and has limited shipping space, you can offer to remove any furniture they must leave in the house. Or you might agree to give the seller more time to move out, if they have timeline constraints.
The bottom line is that you can expand the scope of your home purchase beyond just negotiating on price, which means you may be able to get a lower purchase price in exchange for helping the seller solve some of their problems.
Just make sure that you work with your real estate agent, clearly establish anything you’re going to do in exchange for a lower price, and make sure that everyone involved one-hundred percent understands the details of the sales contract to avoid any contract disputes.
Take it easy asking for extras
Asking for extras is the opposite of offering to help the seller solve problems. You can ask for the seller to do things to satisfy the sales contract, and many buyers do. For example, you might want certain repairs completed before the sale closes, or you might ask for additional inspections beyond the usual pre-sale inspection.
Just be careful asking for these extras, because they make your offer more complex and therefore less appealing in many cases. Also, other buyers may not ask for extras, especially in a tight housing market.
Obviously, you don’t want to get a lemon, but don’t go over the top. Be willing to concede some of your wish list to make things as easy for the seller as you can.
Get help making a higher down payment
It’s not common knowledge, but there are many options for down payment assistance (DPA). Government agencies — from federal all the way down to local — sponsor DPA programs. Some corporations, mortgage lenders, and other private organizations also offer assistance.
These down payment assistance programs usually come in one of three flavors: grants, loans, and special credit programs.
Grants are the most straightforward. The sponsoring organization gives you money to help you make a higher down payment, and you don’t need to pay any of that money back.
Loans are more common than grants. The sponsoring organization loans you money for a down payment, and the loan is structured in a way that makes it affordable to use the loan for a down payment, usually with a lower interest rate or deferred payments.
Some down payment assistance loans can also be forgiven, either fully or partially. Forgivable DPA loans have criteria that must be met before the loan is forgiven, such as living in the house for at least five years.
Lastly, special credit programs are mortgage loans with conditions that make them more friendly to buyers from underserved communities who have traditionally been given less access to conventional home loans.
Special credit programs vary depending on the mortgage lender, but they typically have more lenient loan requirements, such as lower minimum credit scores and income limits.
All of these types of DPA assistance can help you put up a higher down payment, which, as we’ve established, can go a long way toward making your offer stronger.
Find out if you qualify for down payment assistance
For many buyers, the biggest challenge in getting down payment assistance is finding information about all the available programs. Unfortunately, information about DPA programs is not curated or easy to find.
Stairs Financial solves this problem by bringing all the information together in one place. Stairs connects you to qualified lenders who work with down payment assistance programs, then lets you compare your options side-by-side.
Learn more about all your down payment assistance options.
