# 1 The Proper Down Payment Needed for a Loan

Number one on the list is the buyer does not have the proper down payment

Why is this number one on the list, because without the proper down payment no lender will look at the deal? The down payment will ultimately yield what the Loan to value the client can measure up to, not necessarily what Loan to Value the lender is going to offer. So tonight I want to examine the area of down payment from the requisite amount for each type of loan to what loan to value really means in application.

First let’s explore what the down payment can consist of. Very simply, Down payment is CASH. Many of our prospective clients think that down payment can be the difference between what a property is bought for an increased appraisal amount. Those days are gone. Down payment is only a cash contribution. In the event of a client who owns a piece of land and is building a project, equity can be considered the free and clear land as well as any monies that the client put into the development project that is directly related to the project being built.

Secondly, what down payment is required for what type of loan?

SBA Loans – Business Opportunity – a minimum of 15% contribution by the borrower and 10% by seller or at least 20% by the borrower without any seller carry back. There can be exceptions to the 20% if the business is strong and cash flowing

SBA Loans Real Estate Purchase or Refinance – a minimum of 10% down, as long as not single purpose such as hotel, motel, bowling alley etc. If single purpose most likely the lender will want to see at least 25% down

Commercial Loans – a minimum of at least 25% to 40% depending on the cash flow of the project and the strength of the borrower as well as the future deposit relationship

Lastly for commercial loans the published loan to value maximum that a lender may advertise may not be the actual loan to value that you are going to be subject to. The reason is that loan to value; contribution or down payment will all be dictated by how much cash flow, debt service the project can support.

For more on down payment and contribution get our book today, GET Your Loan closed, and now for a limited period of time includes free weekly commercial loan training.