Our First Home
Is LTV calculated from the appraised value of the home or is it based on the selling price? e.g. My father-in-law is selling us one of his properties. The house was apprasied at about 200k. He is going to sell us the house for 160k. If the lender gives us 80%LTV will that be based on the 200k or the 160k. I would assume it is determined off the value of the home regardless of the sale price, but I just wan to make sure.
Also, My wife and I have low 600 scores, no down payment, 25k in credit card debt from our wedding, and a 30k truck payment. We make over 80k combined income, but we are having difficulty finding a lender because of our debt ratio. We're trying to get creative and I'd like to see if any of you can give some insight as to how my wife and I can get into this home. First of all, dad owns the property free and clear and is willing to do what he has to in order to help us out. We don't have money for a down payment, so i'd like to have dad carry back the amount of the down. He said he would gladly do this. Once dad receives the loan monies, he is willing to lend us another 25k to pay off c.c. debt. We will do the note for 25k + carryback amount at 10% interest over 20years. Hopefully we can refi in a year or so and pay him back at that time. Have I been acquiring the correct information or is this scenario far-fetched? We got a great opportunity here with a seller who will do whatever it takes to help us out and I'd hate to lose this chance to buy a home because we're not doing the right things. Any feedback from any of you will be greatly appreciated. Thanks, so much.
Ruknmaul
LTV is loan to (appraised) Value. But you will need to check with your mortgage broker or lender to make sure that they will lend on your buy price or your value price. Usually it is the smaller of the two amounts.
You may want to have him put you on the title and then refinance to pay him off, and your credit debt. It would require little cash reserves if any. Also you can get a rehab/refi loan and fix it up or add on to it to improve its value.
Good Luck,
Kyle
Well getting Dad $160 k is not that big a problem. A thirty thousand dollar truck and a twenty five thousand dollar wedding for a guy who can't pay his bills on time is a problem. Your lenders are right. All that debt is going to bite you in the ass at the first bump in the road.
LTV is calculated on the lower of appraised or sale price. So jack up your purchase price to the $200,000 appraised value and have Dad "give" you $40,000 to put down. And the down-stroke part of the problem goes away.
The ratios problem is harder to deal with. You gotta get your act together and reduce your spending or increase your income or both and pay off some of that debt. This is not only because the lenders say so. Assuming for the moment that the $80K annual income is evenly split between you imagine what happens if either of you looses your job for an extended period.
Now if Dad is willing to refinance the house in his name and then sell it to you subject to the new mortgage then you can get this deal done. Dad can probably borrow up to 90% LTV or $180,000. But if you don't learn to live within your means all that is going to happen is dad is going to have a foreclosure on his credit report.
Greetings Ruknmaul,
As has been pointed out, the amount a mortgage company will lend is typically based on the lesser of the two numbers. So in this case, if you’re going for an 80% loan, it would be based on the 160K, not the 200k. Also, keep in mind that lenders also have limits on the CLTV (Combined Loan to Value). So again, if you’re getting an 80% loan and wanting your father to carry a 20% second for your down payment, that would be 100% CLTV – which some lenders will do, but not all of them.
I suppose one way to do it would be to buy it for 200k, with your father carrying 20%, and then having him "forgive" the debt after the fact. But that would require getting a loan with no asset verification.
But I like the idea of just having your father put you on title, and then refinancing it. Then it WOULD be based on the 200k. He could just add you to title, deed it to you, put it in a family trust, or just do some sort of owner financing for you. While many lenders want to see "title seasoning" before refinancing, there are some that will do it right away, as it’s your primary residence.
HTH
[ Edited by mcole on Date 06/01/2004 ]
Some have presented some good ideas, but there is another point that may be worth pursuing. When it is a non-arms length transaction (family to family) many lender will allow for a gift of equity which effectively is your down-payment. Sell the house for 200k, do one mortgage for 160k-stated if need be while you get things in line-and skip the finangling with a "phantom second." A portion of the gift of equity should qualify as a tax-free gift. I closed one earlier this year through Option-one just as I described.
Ruk,
I think you have gotten great suggestions here so speak to a lawyer about how to structure the deal so your dad is not at risk in the future and maybe even get some tax savings.
But before you do that you should read "Millionare Next Door" and/or "Millionaire Mind" because statistically speaking you and your wife will never make it to millionaire status because of the help you are about to receive.
Wishing you positive cashflow!
Thanks everyone for the advice, and thanks to commercialking for the scathing verbal assault…hopefully one day I’ll be able to return the favor.
I’ll be sure to post the eventual outcome.
Cheers
Quote:
On 2004-06-04 23:12, dirtman89 wrote:
Some have presented some good ideas, but there is another point that may be worth pursuing. When it is a non-arms length transaction (family to family) many lender will allow for a gift of equity which effectively is your down-payment. Sell the house for 200k, do one mortgage for 160k-stated if need be while you get things in line-and skip the finangling with a "phantom second." A portion of the gift of equity should qualify as a tax-free gift. I closed one earlier this year through Option-one just as I described.
Quote:
On 2004-06-04 23:12, dirtman89 wrote:
Some have presented some good ideas, but there is another point that may be worth pursuing. When it is a non-arms length transaction (family to family) many lender will allow for a gift of equity which effectively is your down-payment. Sell the house for 200k, do one mortgage for 160k-stated if need be while you get things in line-and skip the finangling with a "phantom second." A portion of the gift of equity should qualify as a tax-free gift. I closed one earlier this year through Option-one just as I described.
Dirtman,
My wife and I give you much thanks for your reccomendation on the gift of equity. We just closed and are the proud owner's of our first home. New appraisal came back around 270k, we bought it for 205k+20%gift. Actually, we got back 25k from seller to pay off our debt, so selling price was actually 180k. Lender tells me I have to wait 6mos. until i can touch that equity in order to buy our first investment property. We can hardly wait to get the ball rolling. Thanks to all who gave advice on our situation.
Cheers ~ Ruknmaul