If you, like many, struggle to get the 20% Down Payment required to purchase a home (without mortgage insurance/PMI), consider this creative mortgage hack.
If you are buying the property (i.e. not refi) ask the lender to lend based on the appraised value, if it appraises higher than the sale price. If the appraised value is higher than the sale price, and the bank indeed goes by the appraised amount, then your required downpayment will be less for it to be considered conventional.
Let’s assume, for example, you want to buy a home and settle on a price of $300,000. The appraisal, however, comes in at $325,000.
Mortgage based on the Sale price (Typical situation):
- 80% of $300,000 = $240,000 Mortgage
- Req’d Down payment (for conventional purposes) 20%: $60,000
Mortgage based on Appraised Value (A-Typical Situation)
- 80% of $325,000 = $260,000 Mortgage
- Req’d Down payment (for conventional purposes) 20%: $40,000
In the second case, you can end up purchasing the home with $20k less downpayment – and avoid the costly PMI.