do I need 20% down on investment loan?

Question

I have 3 investment properties now.  My current properties I bought cash (using my HELOC on personal residence) they needed tons of work once I did all the work (sweat equity) and got them rented I would get a cash out 30 year loan to pay myself back.  I could do this because when I was done the houses would appraise for a lot more then the loan amount I was asking for (I think my loans were for about 80% of house values).

I am looking at properties now that don't need a ton of work and I was looking at getting a standard mortgage from the start (instead of paying closing costs twice).  If I purchase a house that appraises for 135K and I pay 100k do I still have to put 20k down to get a loan, or could I get away with less money down?

Thanks

Chris Mason · Answer

The down payment is still based on the purchase price, but if you're worried about the 1st set of closing costs knowing there will be a refinance in the near future...

...did you know that discount points can go the other direction and be a negative number, ie a lender credit towards most of the closing costs? Compare how much you can get in lender credit to 6 payments at the higher rate and see if it makes sense.

Chris Mason · Answer

Assuming Fannie money:

- If the purchase contract says $100k and appraisal says $135k, the appraisal figure is thrown out and the lender will only consider the purchase price.

- If purchase contract says $100k and appraisal says $95k, the purchase contract figure is thrown out and the lender will only consider the appraised value.

After six months on a refinance, purchase price is thrown out and only appraised value is considered regardless of which is less.

Kevin McDonald · Answer

thanks for info I will look into it

Kevin

Kevin McDonald · Answer

It is SFH.

Yes on my previous cash out loans I waited 6 months and they used the appraised value, I think I was allowed 80% of appraised value.  Doing the cash out loans was nice because at the end I literally got paid back 100% of what I have into the property (after sweat equity and making house appraise for higher value) so I was not using any of my own money.  The only draw back is I was paying closing cost twice (once on original loan and again in 6 months doing cash out).

I was thinking this time if I could get away with putting 10% down, the house is in good shape so I can get standard loan I would put 10k down and only pay one set of closing costs.

Thanks

Jeff Dulla · Answer

@Kevin McDonald Are these potential properties SFH or MFH? Fannie/Freddie will allow you to go to 15% down on a just a normal, conforming loan. There are some other programs out there but they are usually based on median income levels or targeted areas. Of course you can go the route of a Non-Prime loan (higher rates, usually points).

do I need 20% down on investment loan?

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