Do lenders lend more than what the home is worth?

[Brandon Stewart]

Let's just say the home appraises for 200k. Will they approve a loan for someone buying at 210? How about 250k if they put more money down? I know there are lot's of factors involved, and it depends on the lender. But generally speaking, how would that work if the buyer was approved for $250,000.

[Chris Mason]

Hi @Brandon Stewart, and others,

Misconception here. Lenders will in fact allow you to overpay, we're just not willing to over-lend.

Example:

Let's say the loan program you want allows 80% LTV, which as a consumer you probably read as "20% down." There is a difference between those two! LTV is based on the lesser of appraised value or contract price, down payment is based on dollar bills leaving your wallet.

To wit:

• $200k property, purchase price $250k. You want to overpay. We are not willing to over-lend.
• So at 80% LTV, we're going to go [ 80% * $200k = $160k ] loan amount.
• But you've got to get to $250k. Whelp, that means your down payment is $90k (36%).
• 36% down for an 80% LTV loan.

Another example, let's say it's a $400k property that you want to buy for $500k. You're exploring a 95% LTV option as an owner occupant.

• OK then, [ $400k * 95% = $380k ] max loan amount.
• But you've got to get to $500k. Whelp, that means your down payment is $120k (24%) even though it's a 95% LTV loan with PMI!
• 24% down for a 95% LTV loan.

So, will we do it? Yes. Is it smart to put down 24% just to get a 95% LTV interest rate and PMI? More often than not, hell no. 

But if there's something about this property that the appraiser can't take into consideration (something you know that no one else knows?), that makes it a killer deal... it had better be something really good. I'd take PMI if I secretly know there are buried diamonds in the backyard, or someone that just won the lottery grew up in this home and I knew they'd pay top dollar to get it... you get the idea.