Partnership dispute on VA loan

[Amy L.]

Hi everyone, my friend is VA eligible and we are under contract for duplex for 850k in NY. The VA limit is 679k. Which means we need to come up with 42K (25% on the remaining 171k). My friend thinks I should pay for the 42k and closing cost (25k) because he says if it weren’t for his VA loan I wouldn’t be getting the deal. That means I’m putting about 70k in cash and while he thinks his loan eligibility is worth $135k because 20% of the VA limit 679k. I don’t understand how he quantifies that. He is very adamant that I front up all the cash to match. I’d appreciate suggestions if you are familiar with my situation.

[Mike Foster]

Hmm.. what is your intention with the property? Are you both living in one unit and renting the other? 

You could try and get creative and have the seller cover the down payment, and structure a payment plan with interest back to him/her. If they are already getting the majority of the cash up front, I don't see why they wouldn't want to finance 70k unless they still owe a lot of money on it.  

[Amy L.]

@Mike Foster thanks for the response. We will both reside in the property and rent out the duplex. So it will be both residential and investment. Do you agree that loan eligibility should not be factored into capital contribution?

[Mike Foster]

@Amy L. well, there may be a lot of factors that I am not aware of here... but at the surface, it seems your issue here is "who is assuming Risk." If you are both co-signing the loan then you are both assuming the risk. Then capital contribution doesn't make as much sense (unless there is something else I'm missing). But if the loan is in his name alone, then all the risk is on him. So in that case, a capital contribution from you does make sense.

Typically investors want to see you have what's called: "skin in the game" This is because when you have something to risk, they feel more comfortable you'll see the deal through. It is very hard, NOT IMPOSSIBLE, to get started with none of your own money. You just need to use a little creativity, a lot of leverage, and some critical thinking. I would start by asking the seller if they would be willing to carry the balance. If not, then try another bank. See if they'll put a second mortgage on the property. Just make sure your numbers work!! 

Good luck!

[Amy L.]

@Mike Foster thanks Mike