Posted by RJ Baxter on August 07, 2005 at 07:43:37:
Lenders will use the lesser of purchase price or appraised value to determine LTV. So if appraised value comes in higher than purchase price, it just means you are getting a great deal, not that you can get an 80% LTV loan. However, you could get short term financing and refinance in 6 months or a year, depending on the lenders seasoning requirements, into a permanent loan at 80% or less LTV.
Financing RE purchases below market-value question - Posted by Tim
Posted by Tim on August 05, 2005 at 20:24:19:
In this theoritical example, Earl and Ivan are real estate investors. Assume that Earl and Ivan have identical financial situations (balance sheet, cash flow, credit history, etc.) for the sake of the argument.
Earl and Ivan aspire to do the following:
Reduce the cash outlay requirements for a deal, preferably to zero
Obtain long-term fixed financing with favorable rates (6-7%)
Reduce the costs of the financing
(not much to ask for, wouldn’t you agree?)
Scenerio: Two investors, Earl and Ivan, each find properties with a purchase price of $75,000.
Earl’s property will appraise for $76,500. 98% LTV
Ivan’s property will appraise for $93,750. 80% LTV
Upon receiving their respective appraisals, Earl and Ivan begin to search for financing.
What kind of success should Ivan expect to enjoy with regard to the priorities listed above, as a result of the more favorable LTV associated with the deal?
Would it be realistic for Ivan to make this purchase without a cash outlay (beyond due dilligence)? Assume his credit score was 650, and that he qualified full doc.
I would be interested in as many perspectives as possible, so any input would be GREATLY appreciated!!! Thanks for reading my post.
Re: Financing RE purchases below market-value - Posted by wes
Posted by wes on August 06, 2005 at 15:51:35:
Since we are assuming, I’m going to assume your property is a Single family residence.
In that case there are a number of lenders that will do 100% non-owner occupied loans. However, most require a credit score of 660 or more and I personally do not know of any that will do 100% with a score lower than that. But I have heard that there are some out there.
Both of these properties would qualify for 100% based on the purchase price and their appraisal value.
Rates are dependent on how you structure the deal. ARM vs Fixed rate. Short term vs long term. One loan vs a combo/piggyback loan. A loan with or without Mortgage Insurance.
Best way to reduce the cost of financing is find a seller that will pay your closing costs.
Most lenders will allow at least 2% of purchase price for a NOO loan but many will allow 3%.
Re: Financing RE purchases below market-value - Posted by Tim
Posted by Tim on August 06, 2005 at 16:38:11:
Would Ivan (80% LTV) be able to obtain better terms from the lender due to the greater difference between the appriasal value and purchase price, or would it not make any difference?
Re: Financing RE purchases below market-value - Posted by wes
Posted by wes on August 07, 2005 at 12:05:15:
No.
Not if both loans were 100%.
At this point the lender really does not care what the property appraises for. Only that it “at least” appraises for the purchase price.