Is this a viable, and legal, strategy?

[Cole Agnew]

Okay so I bought my first rental property around 6 months ago and am looking to buy another one and I had some questions about financing. The bank that I used for the loan on the first house required me to put down 20% and I am fine with that as I don't want to be over-leveraged. I am going to use the numbers for that house in this example. The purchase price was $140,000, I put 20% down ($28,000) BUT it appraised for $157,500. Since it was a rental property seller concessions were limited to 2% of the purchase price which came out to be $2,800. Would it be possible, and legal, to go to the seller and have offered $157,500 (what the house appraised for) and asked for a check of amount $17,500 for "fixes"? This way I would only have to put down $10,500 instead of the $28,000. I also still wouldn't really be over-leveraged because the house could have really sold for the appraised value, the seller was just dumb. NOTE: my bank would only loan on purchase price sadly, it would have just been much easier if they would have loaned me 80% of the appraisal. 

[Account Closed]

Quote from @Cole Agnew:

Okay so I bought my first rental property around 6 months ago and am looking to buy another one and I had some questions about financing. The bank that I used for the loan on the first house required me to put down 20% and I am fine with that as I don't want to be over-leveraged. I am going to use the numbers for that house in this example. The purchase price was $140,000, I put 20% down ($28,000) BUT it appraised for $157,500. Since it was a rental property seller concessions were limited to 2% of the purchase price which came out to be $2,800. Would it be possible, and legal, to go to the seller and have offered $157,500 (what the house appraised for) and asked for a check of amount $17,500 for "fixes"? This way I would only have to put down $10,500 instead of the $28,000. I also still wouldn't really be over-leveraged because the house could have really sold for the appraised value, the seller was just dumb. NOTE: my bank would only loan on purchase price sadly, it would have just been much easier if they would have loaned me 80% of the appraisal. 

Banks will lend on the LOWER of appriasal or purchase price. If it appraised for $1,000,000 and you were buying it for $250,000 they would lend on the $250,000 if they would lend at all. When numbers are too far apart, it looks "fishy" and they back away. No banker is going to risk getting fired and going to jail to make sure you get a loan. 

Hard money lenders are a different matter altogether, but they charge higher interest and normally fall under different regulations than banks. Run the numbers between the bank and a hard money lender and see which gets you closest to where you want to be.