Tips and Tricks of Loan to Value Ratio

Say you have an arm of 4.25 with a loan balance of $178,000.00 that you can take as subject-to on that and you are getting the asking price of $325,000.00 for this house. What are you figuring the loan to value ratio for? Now you may be doing this for a private lender because you need the equity. Maybe you need to pay the individual the equity in the house.

This is not a problem, but you need to remember you should not have to pay all cash up front, regardless of what the owner is asking. Let's go back to our scenario. The owner wants $154,000.00, which brings it up to the $325,000.00 that he is asking.

You might be better off restructuring the whole deal. There are three things to think about here.

1. Verify the asking price of the property.

2. Get a full appraisal before you close on it.

3. If you have to come up with the cash, then you probably would be better off giving the seller some cash now and a second mortgage for the balance of it or even a third mortgage for the balance allowing you to go get a much smaller second to reduce your risks.

It doesn't make much difference whether you are going to go borrow the $154,000.00 or the $325,000.00. You are now becoming the stuckee. The minute you buy that property, you have got these two debts on it. You are going to be personally liable for the second mortgage and I would question whether this is really worth what the owner says it is worth. And more importantly, how sellable is this property? If the property is in a sellable area and there are interested parties then you may something to go on. Find out the answers to these questions!

Now if you have a buyer, this gives you quite a bit more freedom. Be wary of people who want to proclaim themselves as a buyer but who just want to do a lease option for a year. That is not a buyer. By doing a lease option they have just that-the option to leave once the lease is up-and you are still liable for the money. You are going to be personally liable for the second mortgage. But you should work hard to restructure this deal so you don't have all the risks. Be careful and figure out your ratio before making any decisions.

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