Net worth must be equal to loan amount?

[Chris Pochari]

Hi guys I'm new here but I've been puzzled over this question for a while. If commercial mortgages require that the investor have a net worth equal to or greater than the loan amount than isn't the idea of a 30% downpayment ridiculous? the real downpayment would really be 100%? Say someone had a $120,000 to invest, most real estate gurus would say that you could obtain a 400,000 mortgage right? Well not really because if the bank requires your net worth to be equal to the loan amount than you could only borrow $120,000. 

[Todd Dexheimer]

You're being mislead. You're purchasing power is determined based on a lot of things and the asset type you are purchasing as well as the type of financing you are obtaining. This is the quick response:

For Conventional type (loan in your personal name) with 1-4 family you will be getting a loan based on credit, income and debt to income ratio. This type of loan you can get 40% of your income and sometimes more if you're a strong buyer. You typically can get the deal done with 20% or less down payment

For commercial loan 1-4 family your loan will be based on nearly the same standards as conventional, however they also look at the asset performance or projected performance. The bank may base the loan amount on your net worth as well in this scenario depending on the borrower.

For Commercial loans with 5+ unit deals or other commercial assets your loan will be based on your financials and the property performance. This is likely where net worth will come into play. Most banks want to see a net worth close to the loan amount. If, however, you have an extremely high income from your job they may look past a low net worth.  Afterall, if you make $500k/year and have a low debt to income, you should be able to cover some pretty good loan payments.

If you are looking at buying, figure out your goals and call local banks. Ask for a mortgage lender and discuss with them your options.