If you buy a house for below 80% ltv do you still have to put a down payment?

Question

I have found a few wholesale deals that should apprise well above the price that I found them for. For example, one triplex I have found is for sale at $140k and I estimate that it is worth at least $200k maybe even 250k. I only have about 10k saved for investing. I was wondering if say it was listed for 200 and I put 20% down the remaining about financed  would be $160k. Would a bank take into consideration that I owe less than 80% of the property and would I be able to not put any money down on it? I have searched for answers but have yet to find anything on the subject. What do you guys think? Thanks.

Bill Gulley · Answer

Lots of misinformation in this thread, so what's new....

Conventional loans are secondary market loans, 80% LTV without PMI, you won't get PMI on a fixer based on an appraisal.

Portfolio loans are held by lenders, they may use conventional underwriting but may vary and can finance fixers.

The rule is: The LTV is based on the purchase price or appraised value, whichever is less.

There is no ARV in conventional loans.

Multi family is 5+ units, SFR is 1-4, (Jerry meant to type 2-4 @ 25% I'll bet, not 1-4 as 1 is a single family detached dwelling that can be at 95% owner occupied conventionally).

This IS a real estate site, saying commercial and giving LTVs is a bit off, multi-family, 5+ units is a commercial loan, a commercial loan is not necessarily for a multi-family. LTV varies as to types of properties from portfolio lenders, an SBA loan may go to 80% on an office warehouse, it may be 60% on a mom and pop dairy queen, it might be 70% for light industrial and combined loan to values, as with purchase money second mortgages may exceed 80%.

Exceptions to the conventional loan aspects are to VA loans up to 100% LTV and underwritten under conventional standards with exceptions.

Then there are Jumbo residential and Piggy-Back financing and piggy-back (1st and second) can exceed 80% LTV, depending on the borrower and property.

I realize investors like to get into forum chatter and expose what they think they know, but you need to speak to your lenders as to what they allow and what they may be willing to do, but the basic rule mentioned is correct, the lower of the purchase/cost or the appraised value. After one year (some portfolio lenders will go to 6 months depending on markets) the cost or acquisition or purchase price is no longer used and they may use only the appraised value.

I'd question the OPs valuation as well, while investors keep talking about "buying under market value" most often they are not, again, you may buy at a distressed value, but a physically or functionally distressed property most likely won't get past the appraisal for a residential conventional loan, may not in a portfolio loan as a residence......commercial residential, or purchase-construction loans, yes. What you pay is most likely the market value if the property has been listed for sale or exposed to the market, such as a FSBO.    :)

Mark Esposito · Answer

I've seen the cash game played a lot.  'For valuable consideration paid..." Right

I've seen deals where cash buyers claim they've already paid the buyer 20% so their share has already been paid up front, leaving the remaining 80%, or whatever, to be paid at closing by the lender. If the sale price is say 50% of the ARV who cares?

To my (limited) knowledge closing attorneys don't verify cash paid up front...or at all for that matter. I wish somebody would cite an example proving me wrong...please to restore my faith in the system!

But I've seen it all too often in order to fudge the comps... upward.

Zach Mitchell · Answer

There is a reason the property is selling at $140k if the comps support a $200-$250k value. If not, you better get that under contract immediately.

To answer your question though, I'm pretty sure the LTV will be based off the lower of the appraised value or the contract price. Without getting into too much detail, you are essentially setting the value of the triplex with the purchase itself (in the lenders eyes).

Anston Asher · Answer

I made an account just to comment on this. I know it was 9 years ago, but this has to be the most braindead question I have ever read.

Ryan Dossey · Answer

Good question and one I had when starting out. They want you to have skin in the game. Your best bet is FHA or 5% conventional if you are looking to do a low DP. There are obviously other means such as HELOC, HML, and owner financing. However if you are looking to not have to pay a DP than the above items probably aren't options.

Galina Derevyanko · Answer

@Bill. G.:

"I realize investors like to get into forum chatter and expose what they think they know" - love it! Thank you for clarification! I recently attended a REI seminar, where I was told that it is realistic to get 70% ARV hard money loan, which means you don't need any down money, but now am not sure those are easy to get...

Galina

Mark Esposito · Answer

BTW I did my first deal that way. The seller was a RE attorney/investor and had no problem with it.  He just jacked up the price to show the sales price higher and got his asking price and the comp was recorded.

Jimmy Danblaus · Answer

Thanks everyone for all the great replies. I haven't had time to fully analyze this property, but I saw the comps and I thought this might work :(.

@paulhoeppner sorry for the bad grammar I was getting ready for work. ;) I am interested in meeting more people in Vegas that are investors. I am still trying to learn what I am doing. Maybe we can share ideas sometime, but I don't know I might not want to learn with someone who makes fun of others and their bad posts haha jk.

Jerry Padilla · Answer

@Jimmy Danblaus the down payment is based on purchase price, no matter the discount you are getting. A SFR is 15% down and a MFR is 25% down if this is mortgage 1-4. Is you have 4 or less mortgages you can do a cash out refinance after 6 months of owning the property based on appraised value. A SFR is 75% LTV and a MFR is 70% LTV for four mortgages or less.

Paul Hoeppner · Answer

Your best bet is to call around.  Ask mortgage specialists and try local banks, for instance Silver State Credit Unions (in your area).

Get creative.  Maybe borrow the remaining down payment with a personal loan, car title loan (a real one, at a bank for 5-9% interest), CC balance transfer check at 0% for 18 months (assuming you have a plan to pay it back), etc.

If you wanted to make the house your personal residence, you could put down 5% and pay PMI for a year.  After that, you could refinance the property with no money down since you'd have so much equity.

If you're finding a deal that instantly generates 60-100K of equity, that's just insane.  Some of the ideas I'm suggesting might not be the most cost efficient and I wouldn't recommend for a lot of scenarios, but missing out on a deal with that amount of instant equity would be terrible.

Maybe get a partner.  I live in Las Vegas.  If you show me deals that good, I'll come up with the remaining cash.  There's probably another 25 Las Vegas based investors on here alone that have cash if you can bring them deals like that.

Lastly, please spell check and/or proof read when asking for advice / help.  Haha!  Sorry, I had to say it.

If you buy a house for below 80% ltv do you still have to put a down payment?

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