By Marcie Geffner - Bankrate.com
Federal Housing Administration-insured mortgages allow buyers to buy homes with less-than-perfect credit and small down payments. The minimum down payment is just 3.5% of the home's purchase price.
A small down payment, by itself, shouldn't be a concern for sellers, says Rob McAllister, owner and broker at West Seattle Mortgage in Seattle. But when you pair a small down payment with a low appraised value, the situation becomes more nuanced.
McAllister describes a situation where a buyer has enough cash for a 20% down payment, but the appraiser says the house is worth 10% less than the negotiated price. If the seller refuses to reduce the price, the buyer can still pay the agreed-upon amount. In that case, the mortgage's loan-to-value ratio is close to 90%, which the lender is likely to approve.
Read more:
http://www.bankrate.com/finance/mortgages/should-home-sellers-reject-homebuyers-who-get-fha-loans.aspx