Lenders usually have the right to take over the property if the buyers stop making their mortgage payments. This is the last thing a lender wants to do. A large down payment serves as a strong incentive for the borrowers to keep the mortgage payments current rather than risk losing their investment in a foreclosure.

The reason the appraisal is so important is that it provides confirmation that if the buyers default and the lender has to foreclose on the property and resell it, the property will sell for enough to cover the mortgage amount. On no and low cash down deals, there's little margin for error.

Some buyers make low cash down offers because they have no choice. They have limited liquid assets. Other buyers are capable of making larger down payments. But, they prefer not to for tax reasons. These are usually high-income individuals who are looking for the maximum tax write-off possible. (Mortgage interest on a primary residence is tax-deductible, with certain restrictions.) They also may have better use for their cash, such as other business investments.

One such buyer wrote an offer, in a multiple offer competition. She offered to make a 10 percent cash down payment. After closing, the seller's agent was told that the buyer actually put no cash down. She financed the purchase with 100 percent financing. However, she was contractually obliged to put 10 percent down, if the lender required. Fortunately for her, she didn't have to.

HOUSE HUNTING TIP: No and low cash down financing can be a tough sell to old school sellers who believe that buyers should put 10 percent or 20 percent down. In competitive situations, it may even be difficult to get a seller to accept a 10 percent down-payment offer. You stand a better chance of having your offer accepted if you do your homework.

Make sure that you have your financing lined up before you make an offer. If you have a high credit score, ask your loan agent or mortgage broker to include this fact in your preapproval letter. Give the sellers, or their agent, permission to contact your loan person directly to confirm that your loan won't be a problem.

The sale price can be driven up in a multiple offer situation. This makes low or no cash down financing even more precarious. Ask your agent to provide comparable sales information that confirms that the property should easily appraise for the purchase price.

THE CLOSING: If you have the ability and inclination to do so, offer to make a larger cash down if the appraisal comes in for less than the purchase price.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

Copyright 2004 Dian Hymer