In mortgage lending, what could trigger the need for a larger down payment?

A larger down payment may be required when dealing with investment properties or borrowers who have a poor credit history. Lenders often perceive these situations as higher risk. For investment properties, since these are typically non-owner-occupied, lenders may ask for a higher down payment to mitigate potential default risks. This is because financing for investment properties is often seen as riskier than for primary residences, making a substantial down payment an attractive option for lenders to secure their investment.

Similarly, a borrower with a poor credit history might face more stringent lending criteria. Lenders may view these borrowers as less reliable in repaying a loan, leading them to require a larger upfront investment. This measure helps to offset the risk associated with lending to individuals who may have demonstrated financial challenges in the past.

In contrast, other choices do not directly influence the down payment requirement in the same way. Higher interest rates may increase monthly payments but do not inherently change down payment requirements. Newly constructed homes may have different considerations related to valuation and risk but are not universally linked to an increased down payment requirement. Excellent appraisal values generally indicate a stable investment, which could suggest lower risk rather than necessitating a larger down payment.