If I buy w/ enough equity in the deal, do I need a down payment?

Question

Scenario: An REO foreclosure lists for $400k on the MLS. The property appraises for $800k. Will a mortgage lender give me an amortizing loan at 75% LTV (i.e. $600k), based on that appraisal, to (A) purchase the property without a down payment, (B) do some rehab, and/or (C) walk away with cash in pocket? If no to all 3 options, is there a different vehicle that would be used for such a purpose?

I'm trying to figure out if there's a way to avoid paying the costs for two separate loans as you would in a standard BRRRR that starts with a HML. I feel like I'm missing something tho, because something tells me it shouldn't be that easy...

If you have any thoughts, please let me know! Maybe my brain's just melted from a long week, so I'd greatly appreciate the assist!

Account Closed · Answer

Banks lend based on appraisal, LTV, down payment, credit report, income, debt to income ratio and things like that.

Hard money lenders vary but generally they lend based on down payment, ARV, LTV, ability to repay, 12 month terms, their BPO, points, payment, etc.

You either need money, credit or a partner with money and/or credit.

Wayne Brooks · Answer

To sum it up......No.

Kris L. · Answer

@Vincent Staverosky

A couple things you might run into here.  First, most lenders will not lend at LTV over the purchase price right away, many require months of seasoning.  It might be trickier to find a lender that does what you want here.

Second, how will you pay for the foreclosure before you refinance?  You can’t do a refi on a property you don’t own, and you can’t close without the funds.

Cameron Rockwell · Answer

@Vincent Staverosky Have you thought about just using hard/private money for the purchase and then refinancing into a traditional mortgage. To be completely honest this sounds to good to be true. Make sure the estimated appraised value is really 800k. You can do this by having an agent complete a CMA for you. If all the numbers really worked on this deal I have no reason why a lender would not lend on this however since the deal seems to good to be true that will certainly raise some red flags. Unfortunately you are going to have to have some skin in the game but there are other creative ways to cover that so just do your due diligence.