Do investment loans use LTV to determine loan amount?

5 Replies

I am looking into an investment loan from the bank. I know someone who is wanting to sell their property. It appraised at over $120k and they are willing to sell it at $105k. So my question is if the bank is going to give me a loan based on the LTV or LTC. If its LTV shouldn't my downpayment be less than 25% due to the instant equity in the purchase? Any help is appreciated!!

Down payment amounts on non-insured loans are less about ratios and more about shared risk.  The lender wants to see you have skin in the game.  This is even more important on non-owner occupied properties.  Depending on the lender you are working with (less so with big banks) the way to get your upfront cash down is to establish a track record of repayment/debt service and of successfully completing those real estate transactions.

Unfortunately, a conventional loan LTV for purchase will be based on purchase price, even if you manage to find a great deal. If you can buy with cash and work with a lender that will do cash-out refi under the Delayed Financing Exception based on an appraisal, you can refi out 75% of the appraised value. (Hint: you can borrow the cash for purchase from other sources - like family or investors or HELOC or 401k and still do this).

Originally posted by @Tyler Dunlap:

I am looking into an investment loan from the bank. I know someone who is wanting to sell their property. It appraised at over $120k and they are willing to sell it at $105k. So my question is if the bank is going to give me a loan based on the LTV or LTC. If its LTV shouldn't my downpayment be less than 25% due to the instant equity in the purchase? Any help is appreciated!!

David was right its based on cost. The technical guideline is the lower of purchase price or appraised value (LTV is based on). This is especially true with conventional financing.

Are there lenders who will do it off ARV/LTC? Yes probably private/hardmoney.

The LTV required in a purchase is based on the appraised value or the sale price, whichever is less. A refinance after one year in title it will be based on the appraised value. :)

@Tyler Dunlap  

If your looking for cash out you can refi after 6 months, however you'll only get 75% of the appraised value

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