I may buy my mother's rental home in Indiana, (single family detached home). She wants to sell it for an amount equal to but not more than the principal owed. If the principal owed is less than 80% of the homes value, am I required by law to borrow a (mortgage) amount not less than 80% of the home value, even if she agrees to a selling price that is less than 80% of the property value? Can I borrow for a mortgage for less than the home value? Can she or I refinance for an amount that is less than 80% of the home value?
I am struggling to determine your reasoning for trying to purchase the property for less than the market value, and then get a loan for the market value, if that is what you are trying to accomplish.
The market value of a property is set by the buyer and seller. Allow me to make up a number for illustration purposes: If the buyer and the seller agree that a home value is $100,000, and the buyer pays cash, there are no bank police or county officials to say otherwise.
However, if a mortgage is involved, then an independent third-party will inspect the property and appraise its value. If the property appraises for $100,000 or more, then the buyer will have no problem convincing the mortgage banker that the property represents a good risk. If the property appraises for $75,000, then the bank will probably be very reluctant to fund the loan because the property is worth less than the value of the loan.
In your instance, let us say for the sake of argument that the fair market value of the home is $100,000. Let us say that an appraiser agrees with that figure. If you buy the property from the seller for $80,000, the bank will have no issue underwriting the loan based on the value of the property. (The bank may not like your credit or income histories, but those are separate issues.)
I surmise that what you are asking is if you buy the house for $80,000, can you get a loan amount for the appraised value. My answer is: ask. This is one instance in life where shopping is the answer to your problem. Download a Uniform Residential Loan Application (Form 1003), complete it, and then go to the Bills.com mortgage savings center for no-cost mortgage quotes from up to four pre-screened lenders.
I hope this information helps you Find. Learn & Save.