If you have 20% equity (or more) do you still need cash to buy?

11 Replies

Hey Everyone! I found a great deal in my local area, pre listing of someone that is moving in a week. They are selling the home for 100k but I firmly belive the property will appraise for 150k or more of that creating alot of equity. I spoke with the a mortgage broker that is a friend of mine and he told me that I need 20% of the purchase price for a down payment and equity dosent matter. Is that true? Will a lender decline me if there is a ton of equity but Im not putting any money down? I dont quite have 20k to put down, but I thought the great equity could help me get cash down waived. Does anyone have any experince with this situation? Thanks!

Robert,

You will always need a down payment unless your using a DPA down payment assistance program or if you area Military Veteran where you would qualify for 100% financing.  The equity in a home is only used when it comes to a refinance, where the equity can be used to cover closing costs.  If you are buying a primary you would need at least 3.5% down, second home 10% and 20-25% for investment property depending on number of units.

Are you a Veteran?

Yes it is true unless you are going to live in it.  For rentals, you need 20% of the purchase price as a down payment.  You could buy it, wait 6 months and refinance pulling out your down payment (if the numbers work).

Originally posted by @Theresa Harris :

Yes it is true unless you are going to live in it.  For rentals, you need 20% of the purchase price as a down payment.  You could buy it, wait 6 months and refinance pulling out your down payment (if the numbers work).

 Yes, IF the property is actually worth what he thinks.

Thanks for the great Info everyone! Gonna have to probably go back to the drawing board and keep saving money until I get enough to put for a down payment plus closing costs. 

@Robert Delgado I’m a noob but I literally just did this a few months ago, my property was $95,000 but it appraised for $135,000 and my lender (Local) waived the 30% down that I had originally intended on paying and all I had to pay was closing cost and associated fees. Look into a local lender.

@Jeremiah Lewis interesting so you just went through a small local bank? It makes sense cause I work Finance in the car business and when the loan to value is low enough banks will buy almost anything. I’ll look into it. Thanks for your input!

@Robert Delgado Yessir, I’m in Alaska and just went with a local credit union. The thing is they never mentioned anything about it that it was an option, I just happened to have my thinking cap on and it dawned on me and I thought “hmm if I have that much equity why do I have to have a down payment?” 2 other local banks didn’t want nothing to do with it but the one I went with when I went in and presented my math on the whole deal after the mortgage officer looked it over I got the thumbs up and me and another guy who bought adjacent lots ended up getting away with it. Definitely worth a shot.

@Jeremiah Lewis Awesome. We have a ton of small lenders near me. I'm gonna make some calls. I haven't put an official contract on the property yet cause the lady is giving me until she moves to see what I want to do before they list it. I want to make sure I can get the financing before I go into a full blown commitment, the house does need quite a bit of work as well. I was thinking if I got a good enough deal I can fix it up decently and refinance to kick some cash back out and start rolling deals that way. Basically a BRRRR investment strategy.

@Robert Delgado

Do you believe it will appraise for 150k before you put work into it?

If so, don't walk away from the deal so you can save money for the future. You have money sitting there waiting for you to harvest.

Partner, alternative lending, wholesaling. Don't let some stranger have it.

Finally, if you don't have money for a down payment, be careful as a new investor starting a rehab. If you have a chance to get you a cushion of cash to start your RE ventures, do it.