Down Payment

A down payment is the upfront cash a buyer pays at the time of purchase, with the remainder financed. In a seller-financed sale, the down payment is what the buyer puts down before the seller carries the rest as a note. The size of the down payment is one of the most underrated drivers of a note's value, because it sets the borrower's initial equity — and equity is the borrower's reason to keep paying and the holder's cushion if they don't.

Down payment, equity, and LTV

The down payment directly determines the starting loan-to-value (LTV):

• A 20% down payment on a $200,000 home means a $160,000 note → 80% LTV.
• A 30% down payment means a $140,000 note → 70% LTV.

More down payment = lower LTV = more borrower equity = a larger equity cushion protecting the note. That cushion is exactly what a note buyer relies on if the borrower defaults and the collateral must be recovered.

Why a larger down payment makes a note more valuable

Down payment matters for two reinforcing reasons:

1. Skin in the game. A borrower who put 25% down has far more to lose by walking away than one who put 3% down. Larger down payments correlate with lower default rates — the borrower is financially and psychologically invested in keeping the home.
2. Downside protection. If default happens anyway, the equity from a big down payment (plus subsequent amortization) means the property comfortably covers the note's balance through foreclosure and resale.

Both lower the buyer's risk, reduce the required yield, and raise the price you can get for the note.

What buyers like to see

There is no universal minimum, but as a rough guide:

• 10% or less down: thin equity; the note is more dependent on payment history and may price more conservatively.
• 15%–20% down: a common, healthy range for owner-financed notes.
• 25%+ down: strong equity that supports the best pricing, all else equal.

Down payment when you create a note to sell later

If you are financing a sale and may sell the note down the road, requiring a solid down payment is one of the simplest ways to maximize its future resale value. It lowers LTV, screens for committed buyers, and builds an equity cushion from day one. Pairing a good down payment with a fair note rate and clean documentation (and an RMLO for owner-occupied homes) creates the kind of note buyers compete for.

What it means when you sell

When you request a quote, the original down payment and the resulting LTV are key inputs. A note created with a meaningful down payment is more valuable and more liquid. If the down payment was small, lean on other strengths — strong seasoning, a first-lien position, and appreciation that has since lowered the effective LTV. Our note value calculator lets you see how the equity picture influences the estimated offer.