Investor · Petersburg, VA · Member since 2012 · 8 posts · 0 votes
Every bank I have asked, will only make loans based on purchase price. So, it doesn't matter how great a deal I find, I still need 20% of the purchase price. (plus closing and fees, etc.)
My question is... Am I not asking the right bank, or are there banks that will make LTV loans?
I know I can go hard money, but if my goal is to buy and hold, it doesn't make sense.
The issue is that banks have suffered catastrophic losses by letting folks borrow 90-100% on trumped up appraisals during the 2002-2007 period. Banks are rightfully suspicious of appraised values, especially in a still downward-trending market where foreclosures are running strong, and particularly when huge amounts of equity appear to have been created out of thin air on a deal. They are even more suspicious of borrowers who won't make a reasonable investment in a property, as that borrower has little incentive to try and preserve the property at all costs.
This is the reality, and there is no circumvention of it. Banks are applying what they've learned from the meltdown. They're still doing lots of stupid things, but I don't think this is one of them. If I ran a bank, I'd want skin in the game. Most HM lenders even want this.
Most banks want to see at least 6 mths of title seasoning, many 12 mths.
All that said, at least a couple of members on here have stated that they can do cash out refinances immediately after rehab, with local banks, using appraised value. These are exceedingly rare, but maybe if you call every bank in your area, you'll get lucky.
Banks will use the lower of purchase price or appraised value unless you buy using more expensive money and let the property season. Then you can refinance using the true market value.
I'm trying to get past the need for 20%. If I can find a deal for a house that will appraise for 200k at 100k, I still have to come up with 20k plus costs.
I need a better solution for this type of problem.
The issue is that banks have suffered catastrophic losses by letting folks borrow 90-100% on trumped up appraisals during the 2002-2007 period. Banks are rightfully suspicious of appraised values, especially in a still downward-trending market where foreclosures are running strong, and particularly when huge amounts of equity appear to have been created out of thin air on a deal. They are even more suspicious of borrowers who won't make a reasonable investment in a property, as that borrower has little incentive to try and preserve the property at all costs.
This is the reality, and there is no circumvention of it. Banks are applying what they've learned from the meltdown. They're still doing lots of stupid things, but I don't think this is one of them. If I ran a bank, I'd want skin in the game. Most HM lenders even want this.
Most banks want to see at least 6 mths of title seasoning, many 12 mths.
All that said, at least a couple of members on here have stated that they can do cash out refinances immediately after rehab, with local banks, using appraised value. These are exceedingly rare, but maybe if you call every bank in your area, you'll get lucky.
The other factor is that banks want to see the borrower have some "skin in the game"...when you are 100% leveraged on a property (even one where the value is significantly higher than what you purchased it for), it's pretty easy for you to just walk away on a whim. When you have 20% of your own cash invested, it's a little tougher for you to walk away.
Remember, banks wants consistent payments, not properties (even if the properties are below market value).
Only advice I can give is look for a real small bank. My bank has 4 branches, each one in a town of 2,500 or less. They are loaning me up to 85% of appraised value on houses that I am rehabbing and holding for rentals. As long as I buy at a great discount, I have a newly rehabbed house with nothing out of my pocket. That being said, this small bank also has 6 deposit accounts of mine.
Only advice I can give is look for a real small bank. My bank has 4 branches, each one in a town of 2,500 or less. They are loaning me up to 85% of appraised value on houses that I am rehabbing and holding for rentals. As long as I buy at a great discount, I have a newly rehabbed house with nothing out of my pocket. That being said, this small bank also has 6 deposit accounts of mine.
Caution: Bank may quickly grab your deposit accounts should they have to foreclose any of your loans. [I hope not.]
I'm working with local credit unions. The first appraised the place I bought $15,900 above what I paid for it and is willing to allow me to draw against that equity (75% of appraised value). I'm working to refinance the 2nd property I bought with two other credit unions and both are talking appraisals and 75% appraised value which is expected to be about $40k more than I paid.
Shop around... some are doing it you just have to do the legwork (I've spoken with upwards of 50 credit unions at this point).
Thanks for the feedback. This is exactly what I was looking for. I understand why the banks want skin in the game, I was more concerned that there was a Fed rule that disallowed this type of bank behavior.
Looks like I need to keep shopping. (and saving some more cash)
Thanks for chiming in, Ryan B., you are precisely who I was thinking of. I even typed "Ryan B." in the search box at the top and got two hits, neither of which was you. So there is a flaw in the search program.
Every bank I have asked, will only make loans based on purchase price. ...
My question is... Am I not asking the right bank, or are there banks that will make LTV loans?
...
ALL banks only make LTV loans, because LTV stands for "Loan To Value". Maybe you meant to ask a slightly differnet question, where "LTV" is replaced by "ARV" or "appraised value" ...
ALL banks only make LTV loans, because LTV stands for "Loan To Value". Maybe you meant to ask a slightly differnet question, where "LTV" is replaced by "ARV" or "appraised value" ...
I disagree. Banks make loans on Loan To Cost (LTC). Obviously the value of the property must not exceed the cost.
If I could get the loan based on Value, then my 20% equity is already there, no need to come up with the cash.
You might disagree with the way the bank is setting the value, but in the end the value they place on the property during their "seasoning interval" is taken from the lower of purchase price or appraised value. Still LTV to the bank ...
Lets get real. When you buy a property the prices you pay IS the value. The value of a property is what a willing buyer will pay a willing seller. By doing a transaction you establish a value. Now, you may be able to improve the property in some way and raise the value. That may be rehabbing or could be as simple replacing a desparate seller (the one who sold it to you) with a more paitent seller (you.) But the appraiser will see your transaction when you sell and that will affect your property's value. And it will affect future sales in the same are, which will then indirectly affect your price when you sell later.
You might try to find a bank that will do construction loans or lines of credit that will let you acquire and fix the property. They hold for their seasoning period and refi. Subject to or other forms of owner financing might let you get in cheaper, though may limit your choice of deals.
Jon made a good point that I left out by accident. I am using a contruction loan and line of credit when doing this. The bank is not requiring any seasoning, as soon as the rehab is completed they are refinancing me with portfolio loans up to 85% of the new appraised value. Since they are keeping the loans in house, they are also giving me credit for rental income as soon as I get a tenant in each property.
No, on initial purchase they are lending based on purchase price. Refinancing after about year or two is possible though. I have done it. The paper work is a PITA though.
I vehemently disagree that the purchase price equals value. We have had this debate numbers of times on BP. What ONE buyer will pay for a distressed properly does not necessarily make it what the MARKET will bear. This squares with all sorts of finance theory including the CAPM. You have to have a market to make a market price. A market of one when there is distress makes the VALUE diverge from the COST.
Price is what you pay. Value is what you get. That is why there is a LTC TLA that is different than LTV. It is common for commercial loans to be specified in LTC because people don't want to have these debates when the bank can vary their underwriting parameters.
I think you're going to have a very hard time finding any bank willing to do a purchase loan based off the appraisal value.
Not unless you have a ton of money in the bank.
I have a friend that is buying some condo units cash
and his local bank told him they would refi them
up to 80% LTV with NO seasoning.
Now he also has over 500k in the bank too
so its pretty easy for them to have a comfort level.
You're best bet to tie up as little money as possible is
to buy with hard money and then refi rate and term
after 6 months. You need to find a hard money lender
that will loan up to 100% of purchase plus rehab
so when you do refi, you can pull your money back out.
HM lenders financing 100% of purchase+rehab?? I haven't used any, but in this downward-trending foreclosure-saturated market, there are HM lenders stupid enough to do this?