The Hidden Factor For Zero or No Money Down Real Estate Investing
If you really want a bank to finance you, and say you have a bankruptcy that was discharged 2 years ago, you still have a good chance of buying a home, even with no money down.
Banks usually lend around 70%-85 of the Loan To Value of a home.
If a home is selling for $100,000 the bank will in this example only lend $70,000 leaving you to raise the remainder of $30,000.
Here's an example, and the hidden factor you're looking for...
The remaining $30,000 will sometimes be held as a 2nd mortgage by the seller at a reduced interest rate if he/she thinks you're a good risk to them. See if they go ahead with the deal and you don't pay them the $30k, then they, the old home owner is forced to foreclose on you just like a bank would if you didn't pay the 70k.
Anyway, Lets say the seller was an excited seller and went for the deal, all you have left to negotiate is who is paying for the aprsl, title search, recording of the records, and believe it or not who will or how will the money the person brokering the deal get paid. The broker can charge around 2k even.
So, you see, you first need to know the loan to values the banks finance at, and then when the time comes to do a deal you'll know who has the best LTV. The best LTV is the one that pays as close to 100% as possible.
Next, you take the amount the seller is asking for and negotiate it down. I usually make my first offer 10-15k under their asking and if they drop 2k off their asking I usually match what they do by going up 2k in my counter offer. Example...
Seller 70k
Offer 55k
Seller counters at 68k
I counter offer at 57k
He came down 2k I went up 2k. If this keeps up I'll get the home at around 63k and hopefully get an aprsl of 70-75k. If aprsd at 70k the bank would at 70LTV lend me 49k leaving me to pay or do a seller carry back of 14k since I'm buying it at 63K and not 70K.
These numbers I am using like 70% are actually low. If you found a bank that lent 85% of the 70k then in the example above the bank would pay 59,500 leaving you to raise up to $3,500 plus points and closing costs. But lets say the seller would forgive the 3,500, all you would need to raise is the points payment if you wanted to pay down points, and the closing cost.
Hope you can eat all this...
Ed
Wow was I way off?
Thank you for correcting me on this.
How does this effect a foreclosure and value?
I don't think you were way off; at least I followed what you were trying to convey. But then again, I'm in the business. It might have been a little clearer if you stuck with just one set of example figures, either the original $100,000 asking price or the $70,000.
That said, the poster was correct in that the LTV is always going to be based of the actual sales price, never the asking price or the appraised / full market value.
The LTV considers the lower of the purchase price or appraised value!
Raquel
The problem with this scenerio is that banks don't loan LTV, but rather the lower of either LTV or loan to purchase price. That means that if your purchase price is $70K on a home appraised for $100K, then you'll only get 85% of the $70K purchase, even though the home's FMV is $100K.
If the bank knows that a property has 30K built in equity, why would they not loan me 100% of the sale price? If I defaualt they would be able to recoupe the loan amount and some...right?
Tee
Well Tee,
First, the bank knows that a foreclosure eats up 30% or more of any equity. Second, banks will loan 100% of purchse to owner-occuppied, but at higher interest rates and with PMI (default protection). They won't loan 100% to investors because a) the higher risk of default b) as an investor, you need to actually invest something. Banks view value as the lowest of either appraisal or purchase. If a property was appraised at $100K and you bought it for $10.00, then to the bank, it was only worth $10.00 and they'll loan 90% to you.