Rental Property Investor · Philadelphia, PA · Member since 2015 · 213 posts · 160 votes
Hey BP,
Will any banks or CUs give a loan based on value rather than purchase price? I may be able to acquire a property below market that I plan to house-hack and was wondering they'd lend on value? That was I'm cashing out before even putting money in?
Or do I have to do a regular loan and then wait 6 months/1 year to refinance and then pull equity out?
The only way we've managed that with a residential (1-4 unit) property is to buy it cash and then refinance. If you are financing at time of purchase, lenders tend to underwrite to the lower of the appraised value or the purchase price (They like it when there is built-in equity).
Here in Canada, if there is a lot of baked-in equity that we want to access, and we must Close with financing, we have the option to choose an "open mortgage" (as opposed to "closed") where there are no penalties for retiring the loan early. Then, in 45 - 60 days, we'd refinance the property (we do not have a hard-n-fast seasoning period).
Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
8y
Even on 100% cash purchases I have been limited to the lower of purchase price or percentage of appraisal. In one instance I had a $200k appraisal but my loan was limited to 70% of purchase price ($110k) so I only was able to get $77k back. I have used a HELOC to get a $99k loan one month after purchase on a property I purchased for $45k :) Clearly there were some banking errors made at the CU, they based it off property tax value and the land value alone was ~$130k.
If you are getting into a house with only 3.5% I would be surprised if you found a house that will qualify for FHA that will appraise at 80% LTV... If you can find properties qualifying for FHA at 80% LTV I need to start looking in Atlanta!
As many have mentioned, most loans have seasoning periods where you can't get an appraisal to get out of PMI for a period of time, sometimes as long as 2 years. The BRRR method does work because one of the Rs stand for renovate. Renovations take some time so many people don't talk about the seasoning period. Renovations also show the lender that you have put money in and you may have increased value.