Having a down payment is one of the three critical data points lenders review when approving an application. Besides having an initial equity position, borrowers must have good credit and sufficient income. A down payment helps lenders both private and public feel better about approving a loan.

Theredown payment more than just for risk are no down payment loans available for borrowers who intend to occupy the property but not very many of them. In fact, there are two programs at last count that allow for no money down and they’re both government-backed loans- VA and USDA mortgages.

Borrowers with some “skin in the game” so to speak are less likely to walk from a transaction and lose not only the equity in the form of the down payment but any appreciation that has accrued. In fact, one of the reasons banks require at least 20 percent down from a real estate investor is to lessen the likelihood the borrower will default. If a borrower gets into financial trouble and has a primary residence as well as a rental property, the rental property is likely the first one to go into foreclosure. Yet there is another reason why low/no down payment loans can be a problem—when selling.

Flipping properties and cashing in on the equity upon sale is a very basic process. Buy low, make repairs then sell for more than enough to cover all buying and selling expenses related to the transaction. Sometimes buying and selling costs are greater than the anticipated profit and the deal never gets out of the starting gate. In light of that, very little down means very little equity and if the owner is forced to sell or is even considering doing so, the closing costs can add up to more than the equity in the project. Low down payment loans help people get into properties sooner but can also mean holding onto the property longer than anticipated.