Mortgage down payment if property is much more than the loan.

[Christopher Leavitt]

Hi all, 

Would I still need to provide a down payment on a mortgage if the loan is valued far below market value on the house in question? I have the opportunity to purchase a property for $160,000 through someone I know. The house is worth anywhere from 260-300k. I want to make this into a long term rental. Does anyone think I would have to provide a down payment to acquire a mortgage for this property at $160,000 for the loan request?

Thanks all!

[Theresa Harris]

If the house is worth $260K, but you only need to get a mortgage for less because someone will sell it to you for $160K, that is fine.  You will still need to come up with a down payment.  Your purchase price is $160K and you will need to come up with 5-20% (5% if you are living in it and 20% if you plan on renting it out and not living in it).  Assuming you want to rent it (as you said in your post), you will need $32K plus closing costs and you could get a mortgage for $128K (assuming your bank will lend it to you).

What some people will do is after 6 months, they will refinance the house.  At that point, you can take out up to 75% of the house's value ($195K) which would allow you to pull out the equity.  The down side of that are your mortgage payments go up and there are no guarantees.  There are also fees associated with refinancing.