I am just in the education phase, and have not even begun to look for deals yet. The thing that confuses me is LTV. Here in Texas 80% seems to be the norm.
But I am confused as to exactly what this means. Does it refer to the appraised value of the property or the purchase price?
Example:
Assume I found a piece of property I liked and that the appraised value was $100,000, and that I was able to negotiate the price down to $80,000. Would a lender who offers 80%LTV loan me $80,000, or $64,000(80% of the purchase price)?
Most lenders will loan a certain percentage ot the appraised value or the purchase price which ever is less. In your example if the MAI appraisal comes in at $ 100,000 and you can buy for $80,000 most lenders will loan only the $64,000. When i say most i mean most convential lenders like banks, mortgage companies, mainstream lenders. You can call a 1000 of them and they will all tell you the same rule of thumb. Some will allow the seller to carry back 2 mortgages and you can add repair allowances to some of the deals to help keep the down payment lower. If you plan on buying to keep then these type lenders will probably be your best shop because of the lower rates and long term loans.
Because of my bad credit, I am forced to find super deals and use hard money lenders who loan 70% of the appraised value no matter what i pay or how I actually finance the deal. I got one seller to carry back a second for 50% of the purchase price and I borrowed $15,000 extra on the deal. The rates are higher 14 to 15 % but this is the only option I have found that works for me other than partners. There are also 5 to 6 points to pay. This may be the way you want to go too if you have little money to start or not so good credit or both. I am not sure why it is called hard money because it is easy to borrow. Must be because it is hard to pay back. I am being really carefull in selecting really good deals that i know will work because i know that it will be hard to make the deal work otherwise.
If i can help more please let me know
Thank you,
Ted P. Stokely Jr
11505 Sw Oaks
Austin, Texas 78737
I was able to borrow money based on the appraised value and still get good rates. I borrowed from my credit union, but I went through the business loans department instead of the home loans. Apparently it’s pretty common for them to loan money for apartments, warehouses, etc. based on appraised value. Only problem is that the appraisal came in low because the appraiser knew what I was paying for the place (the credit union set up the appraisal) and rents were pretty low at the time. But the numbers still worked out for me. I came out of pocket very little and didn’t have to pay for mortgage insurance because the purchase price was below 80% of the appraisal price. It’s rare that you’ll find a bank that will do this sort of loan. But try business loans through credit unions.
I was referring to the FICO score on my credit report. I am assuming that is the main thing, after the amount of debt, that someone offering a loan would be interested in.
If I am wrong, and it is quite likely I could be, please let me know. I am here to sponge info, well aware of how little I am aware of.
So what would a lender be looking at if not my credit score? In addition to the cash flow of the property that is.
Low 700’s will get about any mortgage product you desire at the most fovorable rates. This includes stated income, NINAs, no docs, all on NOO properties. If you are getting into REI, your credit will very much work to your advantage.