30% Down or 30% Equity?

Question

Hi,

I'm curious. With capturing deals with built in equity (let's just stick with the 70% ARV for now, but assume also that the house is move-in ready... as such 30% of current market value), do I need to put money down (say 3.5% for an FHA loan) when I have 30% equity built into my purchase price?

Assuming the appraisal comes back with a value much higher than I'm paying for it, is that spread enough to waive the downpayment requirement?

David Friedman · Answer

@Brie Schmidt is correct on this one. Banks will only loan on the purchase price. You must wait 6 months to a year (Called seasoning a loan) until you can refinance any other equity out of the property.

If you purchase with cash instead of using a loan, then you can avoid paying loan origination fees twice, but then your money is tied up in a single property.

Brie Schmidt · Answer

@Joshua Durrin Are you asking if you are buying a house worth $100k at $70k do you still need to put down a down payment? The answer is yes. Your down payment is based off the purchase price.

If you are really buying that much below market value after title seasoning of 1 year you can refinance based on the current market value.

Joshua Durrin · Answer

Ah, I see. Makes perfect sense now. Thank you both.

30% Down or 30% Equity?

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