Possibility of no down payment?

Question

Hello all,

So I have a possible property I might buy from a relative. The property is worth about 400k, but he is willing it to me for 300k. He bought the property 10 years for 215K, and with loan pay down over the years he could stand to make about 100k off of this sale.

Because the loan I would get of 300k is less than 80% of the total value of the house, does that mean I would not have to put a down payment on the loan?

Ryan Howell · Answer

If you are getting a traditional loan, they will typically lend based on the lesser of LTV and LTC (loan-to-cost) until a seasoning period is complete (typically 6 months of ownership).  If you plan to live there, we see a lot of owner-occupant traditional loans with 3-5% down.  There are some loans like USDA that are 0% down, but its typically regardless of whether you have a lot of equity in the deal or not.

You can always refinance after the seasoning period and take out 80-85% of the home value, just be sure you don't take out so much that the property is no longer a "good" deal.  Make sure you still achieve your cash flow and equity targets.

Whitney Hutten · Answer

@Michael Russell Yes, you could very well not have any of your own money in for the downpayment rather allowing the equity to carry it for you.  Have you had the home inspected? Is there a ton of deferred maintenance?  Have you factored in the repairs needed prior to refinancing? You don't have to answer this, but I'm curious to know why he's leaving $100K on the table.

Nathan Gesner · Answer

The lender will have the property appraised. If you are buying it with more than 20% equity, they may finance you without any money down or very little money down. It would help if you were working with a lender that has a relationship with you. I've been able to finance things in ways an ordinary person couldn't because I've worked with the same lender for 10+ years, they know everything about my financials, I've proven myself 100% reliable and successful in my investments, and they are a local lender that can underwrite their own deals.