Conventional loan for an under priced property?

[Kyle Gregg]

I have a question about conventional loan financing...

If there was a house on the market that was selling for $40k and is valued at $90k, how will the bank write up this deal? Will you still have to put a 20% down payment even if the value of the house is above 20% asking price? Or will the bank consider this 50k price difference as equity and not require the down payment? 

Also, it would only make sense to purchase a house with hard money then roll into a conventional loan if the house is in need of renovation. The bank will loan you the ARV of the property with a 20% down payment? Or would you only ask the bank to finance what you need to repay the HML; the difference between the HML and ARV would be considered equity and thus eliminating the 20% down payment?

Lost on the conventional loan concept. 

Thanks.