Banks want strong collateral.
Imagine a world where that were not the case. IIf they lend 95% of the appraised value! Lets pretend you got an appraisal for $500K then 95% of that is $475K. If you could buy it for $359K and get the bank to give you $126,000 cash -- if they just went with the "higher of appraisal or sale price"
The banks would get a lot of business then they would go out of business.
Oh yeah. A lot of them did. And they did.
Remember Washington Mutual, INdyMac, Countrywide? Yeah, me too.
Shane Milne | Lending in all 50 states | NMLS #81195
You will be eligible for refinancing your home after 1 year.
Once you have actually paid your loan down to 80% of the original purchase price ( loan amount in a refi), you can request the mortgage insurance to me removed from the loan.
You may request removal of the mortgage insurance once the home has increased in value and the new loan to value is at 70%. This will require your supplying the lender with an appraisal.
All the above scenarios require that your payments be made on time and the mortgage be in good standing.
You can purchase a home for more than market value. The lender will only loan on the loan to value ratio of the appraised value, or market value. The buyer would need to come in with the difference in cash and contribute more for the downpayment.
You can purchase a home for LESS than market value, the lender will only loan on the property at the lower purchase price.
in your cirvumstances, with the home price being higher than what you are paying for it, your calculation would not require you to bring any money in. The lender wants to see at least a small investment on your part in order to loan their own money on the purchase.
Home values go up, and sometimes they go down. When they go down, homeowners often think that the lender should take the loss, not them, which is erroneous thinking. (when the home goes UP in value, no one considers sharing their profit but they sure are quick to expect a lender to take the loss....see what I mean?)
That's the reason you need to to provide 5% down so you are providing a small investment into the purchase.