How Do Banks Value Equity in Property VS. Cash?

Question

When applying for a loan do banks value equity in property less than cash?  If so, by how much?

Thank you

William Coet · Answer

To carify: Would a person with an unencumbered property have to do a home equity loan to get cash from the property if they want to use it towards a new purchase, or could the bank put a lien on the property and that be sufficient?

Stephanie Medellin · Answer

@William Coet  No, 100k in equity in another property is not counted the same as 100k in cash.  If you need to showreserves, equity left in a property cannot be counted as reserves.  Only if you pull the cash out through refinancing will that equity be considered, but then you'd have to qualify with that additional loan payment.

Wayne Brooks · Answer

@William Coet Your “assets” aren’t really a component of loan underwriting.....your income, monthly debts and value/ltv of the property you are buying are what matter.

William Coet · Answer

For example:  If someone wants to buy a property and they already own another property worth 100k with no mortgage (owned outright), do banks treat that the same as 100k in cash when valuing assets of the buyer?

Chris Mason · Answer

Equity in the subject property impacts interest rate pricing. Meaning if you refinance and leave 40% equity in the property, you will get a better deal than if you leave 20% or 30%. Same if you buy a house and put 40% down.

Other than that, equity in other real estate does not count for a whole lot. Some scenarios require that you have 25% equity in property A before buying property B, but you didn't really give a scenario so it's not really possible to answer.