Not Enough Skin in the Game: A Loan We Declined

One of the loans we recently denied was for a single-family home that was being purchased as an investment. When we underwrite a loan, we look to see how much “skin in the game” the borrower has, and on this loan we quickly concluded there was not much. The borrower was only putting up 10% of the purchase price and the rest of the money was our loan proceeds and a seller-issued note. Further due diligence showed that there was a credit to be issued at closing which could cover some of the cash the seller usually would have contributed to the transaction. After concluding our research and due diligence process, we felt the buyer was not risking enough of his capital in this loan, so we declined.