You will find experts on both sides of this question. As a practical matter, the former owner will not have any down payment money at all.
So, you will have to plan on holding the financing for 100% of the debt. One lender already got in trouble with that arrangement. Do you want to be the next one? If you do, you might want to use an arrangement called a land sale contract, contract for deed, or bond for title.
Those are all different names for the same arrangement. The seller keeps the deed to the property. The buyer makes some sort of down payment, and then makes monthly payments. The plan might call for payments for several years and then a refinance with a traditional lender. Or, the seller might hold the financing for the long term. The characteristic aspect of all these is that the buyer does not receive a deed until they have made all payments on time, and the purchase price paid in full.
This is a dangerous arrangement for buyers in many states because the financing terms say that if the buyer misses one payment or is late by even one day on a payment, the seller can declare a default. If there is a default, the contract ends immediately. There is no grace period. There is no foreclosure to go through, during which the buyer might do something to save the property. Chapter 13 Bankruptcy by the buyer cannot resurrect the arrangement and save their equity in the property.
Buyers with few choices will often enter into a contract for deed, though, because they have high hopes. Many sellers find the mechanism popular because they depend on the fact that the buyer will default. In the meantime, the seller obtains some sort of a down payment, plus higher monthly payments than they would be able to obtain as rent, plus the buyer usually fixes up the property and improves it. The buyer loses a substantial amount if there is a default, and the seller benefits.
For that reason, many states have consumer protections for buyers in such arrangements. After the buyer has made a certain number of payments, the law might reclassify the parties as traditional lender/borrower with a mortgage. This means that the buyer’s equity will be protected in the same ways that any other borrower’s equity is protected when they are faced with foreclosure.
Other states, however, are very harsh on buyers in this situation. They uphold the right of the seller to declare a default, even when the buyer sacrifices substantial equity as a result. Know your state laws.