> Well, yes, the down payment does reduce the bank's loss in some cases, but it does also functional as a "moral test" in the sense the parent meant.
> Every mortgage application asks if someone else is contributing to the down payment. That wouldn't matter unless there were a difference in risk classes between the two groups of people, so it's not purely a matter of a better loan-to-(initial-)value ratio.
Don't they ask if someone is contributing to the down payment because it could be categorized as a loan that would factor into your income to debt ratio?
I just googled the issues related to mortgage downpayment gifts, and it looks like you're correct. This is the best summary of issues I've found and it doesn't mention anything about being higher risk in and of itself:
From that page, the bank wants to make sure it's not a loan or a side-payment from one of the parties to the transaction.
Still, I'd be really, really surprised if there weren't a correlation between "fraction of DP as gift" and "default rate", but I don't have anything concrete to cite ATM.
> Every mortgage application asks if someone else is contributing to the down payment. That wouldn't matter unless there were a difference in risk classes between the two groups of people, so it's not purely a matter of a better loan-to-(initial-)value ratio.
Don't they ask if someone is contributing to the down payment because it could be categorized as a loan that would factor into your income to debt ratio?