Posted by ken in sc on March 12, 2002 at 12:27:32:
It has always been the policy for lenders that on a purchase loan they use the appraised value or sales price - whichever is lower - to run there numbers on. This is just another way for them to protect themselves from one number being wrong. And they have always required mortgage insurance on loans with over 80% LTV. Again, to protect their interest.
You may be able to get out of mortgage insurance earlier. Have your lawyer check RESPA laws.
I had the opportunity to purchase a house for $50,000 that was HUD appraised for $68,300. Why wouldn’t a lender consider that you are buying the house at 74% LTV, and require no down payment? Also, banks have told me that I would have to pay mortgage insurance with only a 10% down payment on this opportunity, because they go by the sales price, not the appraised value. My thought was, “okay, I’ll just stop the mortgage insurance once the deal is done, because the LTV will be less than 80%”. The bank says I will need to pay mortgage insurance for at least two years unless I immediately refinance. Is this true? Thanks for your help.
Lenders hate nothing down deals. Reason, what have you got to lose? What’s to stop you from running the place into the ground and leaving them holding the bag? It may not be fair in your case but they have been burned before.
They used to do deals like that and maybe they still will, if they know you well enough and you have real good credibility, experience,and financial statements. You have to work on your relationship with lenders. Maybe another lender will be more liberal if you have been doing business with them for several years and they know you are a reliable investor.
Dan,
A good strategy is to buy using cash and then finance after you have owned it for a while. Different lenders probably have different seasoning policies. You may have to wait 6 mos or a year. But at some point, you should be able to get 100% (or more) financing without any PMI. Of course, the trick is to come up with the initial cash. I used a home equity credit line on my personal residence. If that is not available, maybe you could borrow from a relative or find an investor.
Randy