Traditional loan down payment clarification

6 Replies

Hi, I needed some clarification on traditional financing. 

Here’s an example of a deal. 

Buying a SFR

Needs to be rehabbed 

Selling price $192,000

ARV $325,000

Total loan needed would be 75% LTV

Has at least 12 months of rental income history with positive cash flow

What would be required for a down payment for a non-owner occupied loan?

Unless I misunderstanding the question, based on your example of 75% LTV, you would need to bring the remaining 25% ($48,000) to closing. You could also shop around to try and find a lender that would do 80% LTV for a non-owner occupied loan so you would only have to bring 20% to closing.

@Josiah Kay

Sorry I may have not explained it clearly. 

The selling price and rehab cost would still be at or less then 75% of the FMV. Does that make more sense? So, I'd only need a loan of 75% or less of the value of the property. Let me know if that's still confusing.

That makes sense, but for the initial purchase, a traditional lender will typically finance you based on the purchase price, not the FMV (especially FMV based on a future rehab). You may be able to shop around and finding a lender that will finance based on the value versus purchase price, but finding one that is going to finance based on future FMV may be even more difficult.

However, that isn't to say that you can't refinance after rehab and pull out 75% of the appraised amount. 

@Josiah Kay

More details are needed for you to see the creative strategies that in play. 

The rehab will be done, prior to the traditional lender doing their appraisal for the loan being requested. So they will already see the ARV, which is in proximity to the FMV.

Will they still ask/require the typical 20%-25% down payment with the built in 25% equity in the property?

The title to your post says "Traditional loan down payment". A traditional loan will not give you rehab money and is as @Josiah Kay said, 48k for a 75% LTV loan.

If you want a HML or commercial construction loan you can get rehab money included in which case you would have to bring 82k for the down payment. That would give you 52k to do the rehab. You could take a smaller loan if you don't need that much for the rehab. Small local banks (portfolio lenders) will do construction loans for a couple points more than a traditional mortgage and will usually have a 5 year call with a 15 or 20 year amortization.

Not sure what the rental history has to do with it if you are planning on flipping it. If you are turning it into a rental you would probably need at least 2000/month in rent to make it even close to break even. 

@Peter M.

It would start out with a lease/option and the rehab would be done with hard money or private lender. Followed by 12+ months of renting it out for more then $2000+ per month and then the it would be purchased with traditional financing. I don’t think I ever mentioned it being a flip deal, so not sure why you assumed that. Thx for your information though😉