Why your down payment is not enough for the loan you want: LTV limits, appraisals, collateral haircuts, program equity rules, and how to close the gap. Common reasons: the lender caps the loan at a percentage of value or cost (LTV), so you must bring the rest; the appraisal or valuation came in lower than you expected; or the program (e.g. SBA) requires a minimum equity injection.
1. Lender LTV Caps the Loan
Lenders don’t finance 100% of value or cost. They cap the loan at a percentage (e.g. 75—90% of value or cost). The rest has to come from you. If you assumed a higher LTV than the lender allows, your down payment isn’t enough. Fix: find out the lender’s max LTV before you go under contract. Run the numbers: at that LTV, how much do you need to bring? Save or source the difference, or look at a smaller deal. For SBA requirements, see SBA loan requirements.
2. Appraisal or Valuation Came In Low
If the lender’s appraisal or valuation is lower than the purchase price or your estimate, the loan is based on the lower number. That increases how much you need to bring. Fix: get a realistic sense of value before you offer. If the appraisal is low, you can renegotiate the purchase price, bring more cash, or walk away. For fix and flip, see what is ARV in fix and flip loans and why your fix and flip loan keeps falling through.
3. Program Requires Minimum Equity
Programs like SBA expect a minimum equity injection (often 10—25%). If the deal is large, that percentage can be a big number. Fix: know the program’s equity requirement and document the source of funds (savings, sale of asset, gift with paperwork). If you’re short, consider a smaller deal, a seller note that fits program rules, or a different program. See what’s stopping you from buying a business with an SBA loan.
4. You’re Counting Closing Costs or Reserves
Some loans require reserves or have closing costs that aren’t included in the loan. If you counted every dollar as down payment and didn’t set aside reserves or closing costs, you’re short. Fix: budget for closing costs and reserves separately from down payment. Ask the lender what they require so you have the full picture.
5. What to Do Next
Confirm the lender’s max LTV and any minimum equity or reserve rules. Run the numbers at that LTV so you know exactly how much you need. If the appraisal hasn’t been done yet, use conservative value assumptions. Source the full amount (down payment plus closing costs and reserves) before you commit. If you need a different program or lender, get matched with options that fit your situation.