Posted by Ed Garcia on August 16, 2003 at 09:51:43:
For starters, Banks are very interested in lending money on realestate. However a banks attitude is to lend at 80% of appraised value or purchase price, which is ever lower. Our first mission when acquiring a WLOC (Working Line Of Credit) is to circumvent that that issue.
The first thing you have to understand is that banks are not equity lenders. They make loans to people based on credit worthiness and then they collateralize it. The reason the bank doesn?t recognize equity position when purchasing the property is because the bank doesn?t consider it to be your equity unless you?ve earned it. If you?ve owned a property and have made payments on it for a year or more, a bank recognizes that to be a commitment and contribution on your part.
If you just acquired the property at lets say 50 cents on the dollar. Even though the bank knows it has equity, they don?t want to give you credit for it because they don?t consider it to be your equity because you haven?t earned it. You could actually buy a property, pull cash out of it, and leave the bank holding the bag. Therefore they want to see you committed to the deal. The best way to commit you, is for you to have money in the deal.
However after telling you this, I want you to know that this can be worked around and dealt with on a case-by-case basis. Just remember everything is negotiable.