What if 40% of the remaining 60% Loan To Value (ratio) is not paid, or the borrower wants to take only 60% of the loan?
"The loan-to-value ratio (LTV Ratio) is a lending risk assessment ratio that financial institutions and others lenders examine before approving a mortgage. It sounds like your lender has a 60% requirement. Remember the home is the collateral for the loan.  If you stop making payments, they can take the house back from you.  That number is less than 100% to accommodate changing market prices, the cost of foreclosure, repairing and reselling the home.  They may be a safety factor built in depending on the home's location.   If you want to buy a $1.8 million dollar home you will have to come up with 40% down payment.  That down payment is what reduces the risk for the lender.  So no, there is no way to cheat that. Think about the transaction from the view of the lender.   Note: in some areas, you can still get a loan if you don't have the required down payment.  You just have to pay a monthly mortgage insurance.  It's expensive but that works for many home buyers.  A separate insurance company offers a policy that helps protect the lender when there isn't enough deposit paid. Update:  Er, no.  Keep it simple.  The bank will only loan you money if it has collateral for the loan. They've built in a hefty safety margin to protect them in case you quit paying them your monthly payments.  If you want to spend the money on something else, that would work as long as you provide collateral to protect the lender.  You mention borrowing money for some other purpose then buying a home.  That would be fine, but you will have to come up with some collateral that protect the lender. If you wanted to buy a new business, the bank would first ask for an appraisal of the value of the assets of the business.  That could be applied to the collateral safety net for the lender.  If you wanted to buy a business that had little appraisal value, then the bank would require more collateral from you in other forms.  Say you wanted to borrow the money for an expensive operation or cosmetic surgery. In that case there is no collateral value in the operation. You can't sell anything from the surgery to anybody to recover costs. The money is spent and gone.  Before the bank would loan you any money for such a surgery, they would require you to provide upfront collateral.  (in this case if you were to borrow $60,000 for surgery, the bank would require $100,000 worth of collateral to protect their interest in the loan.) You borrow money, then you pay it back at a regular interval at an agreed upon rate and schedule.  Same thing for borrowing money for the stock market or a winning horse at the horse race.  A lender will require a hard asset as collateral before making you a loan...   Yes I know you have a good tip on a winning horse,and you are bound to double your money, but that's not the way it works from a lender's point of view.    It sounds like you are trying to game the system by playing on words.  I will say quit using the ""40% to 60%"" phrase.  That is just confusing.  The bank's loan to value is reported as a single number (in this case 60%)  For every $6000 you want to borrow, you have to provide an asset worth $10,000 as a safety guarantee for the loan. If you want to borrow money for the purchase of a home, you will need to meet that 60% safety requirement.  If you want to borrow $1,000,000 cash for something besides a home, then you will have to provide something with a retail value of $1,666,667 as equity. I think the best way for you to answer your own question is for you to pretend to be the banker, then examine the proposal from the banker's viewpoint. Will the banker alway have enough collateral for whatever it is you are asking to borrow? If you don't yet have that equity, and you need a loan for something besides a home, you can always save your money until you do have enough equity.  Comment One. I thought that most lenders had a 75% or 80% loan to value ratio. The 60% number seems pretty low.  That could indicate you may be a high risk borrower, or possibly that lender is not the best for you.  Have you tried other lenders?  It's definitely worth shopping around for different lenders.   Comment Two. I will say, it almost sounds like you aren't being entirely honest with us here.  No way someone with a monthly income who can afford a $1.8 Million home would be asking questions like this.  I get that English probably isn't your first language, but still.  The other thing is: If you are truly buying a $1.8 Million dollar home your real estate agent would be helping you find a lender that will work with you.  They would be HIGHLY motivated to see this sale happen.   All of your questions could be answered in ten minutes with a visit to your local bank (or any bank for that matter.)  When you add up the costs and taxes and insurance on a 30 fixed loan, you'd have a monthly mortgage payment of nearly $10,500 a month or more.  Can you really afford that on your monthly income?" Sorry, I don't think a bounty is the issue here. You seem to understand LTV means the bank you are talking to will lend you 60% of the value of the home you wish to purchase. You can't take the dollars calculated and simply buy a smaller house.  To keep the numbers simple, you can get a $600K mortgage on a $1M house. That's it. You can get a $540K mortgage on a $900K house, etc.  Now, 60% LTV is pretty low. It might be what I'd expect for rental property or for someone with bad or very young credit history. The question and path you're on need to change. You should understand that the 'normal' LTV is 80%, and for extra cost, in the form of PMI (Private Mortgage Insurance) you can even go higher. As an agent, I just sold a home to a buyer who paid 3% down.  The way you originally asked the question has a simple answer. You can't do what you're asking. "Let me summarize your question for you: ""I do not have the down payment that the lender requires for a mortgage. How can I still acquire the mortgage?"" Short answer: Find another lender or find more cash. Don't overly complicate the scenario. The correct answer is that the lender is free to do what they want. They deem it too risky to lend you $1.1M against this $1.8M property, unless they have $700k up front. You want their money, so you must accept their terms. If other lenders have the same outlook, consider that you cannot afford this house. Find a cheaper house." I wanted to know that what if the remaining 40% of 60% in a LTV (Loan to Value ratio ) for buying a home is not paid but the borrower only wants to get 60% of the total amount of home loan that is being provided by lending company. Generally, A lending company {say Bank] will not part with their funds unless you first pay your portion of the funds. This is essentially to safeguard their interest. Let's say they pay the 60% [either to you or to the seller]; The title is still with Seller as full payment is not made. Now if you default, the Bank has no recourse against the seller [who still owns the title] and you are not paying. Some Banks may allow a schedule where the 60/40 may be applied to every payment made. This would be case to case basis. The deal could be done with only paying 20% in the beginning to the buyer and then I have to pay EMI's of $7451.  The lending company is offering you 1.1 million assuming that you are paying 700K and the title will be yours. This would safeguard the Banks interest. Now if you default, the Bank can take possession of the house and recover the funds, a distress sale may be mean the house goes for less than 1.8 M; say for 1.4 million. The Bank would take back the 1.1 million plus interest and other closing costs. So if you can close the deal by paying only 20%, Bank would ask you to close this first and then lend you any money. This way if you are not able to pay the balance as per the deal agreement, you would be in loss and not the Bank. "This is the meat of your potato question. The rephrasing of the question to a lending/real estate executive such as myself, I'd ask, what's the scenario? ""I would say you're looking for an Owner Occupied, Super Jumbo Loan with 20% Down or $360K down on the purchase price, $1.8 mil purchase price, Loan Amount is ~$1.45 mil. Fico is strong (assumption). If this is your scenario, please see image. Yellow is important, more debt increases your backend-DTI which is not good for the deal. As long as it's less than 35%, you're okay.  Can someone do this loan, the short answer is yes. It's smart that you want to keep more cash on hand. Which is understandable, if the price of the property declines, you've lost your shirt and your down payment, then it will take close to 10 years to recover your down. Consider that you are buying at a peak in real estate prices. Prices can't go up more than they are now. Consider that properties peaked in 2006, cooled in 2007, and crashed in 2008. Properties declined for more than 25-45% in 2008; regardless of your reasons of not wanting to come to the full 40% down, it's a bit smarter to hold on to cash for other investments purposes. Just incase a recession does hit.  In the end, if you do the deal-You'll pay more in points, a higher rate compared to the 40% down scenario, the origination fee would increase slightly but you'll keep your money on hand to invest elsewhere, perhaps some units that can help with the cashflow of your home. I've highlighted in yellow what the most important factors that will be affected on a lower down payment. If your debt is low or zero, and income is as high as the scenario, with a fico score of at least 680, you can do the deal all day long. These deals are not uncommon in today's market. Rate will vary. Don't pay attention to the rate, the rate will fluctuate based on many variables, but it's a high figure to give you an idea on total cost and monthly payment for qualification purposes, also to look at the DTI requirement for cash/debt.  See Image below:"
One reason to not do that is if you consider that one of the loans is at risk of being called in early.   e.g. You have a line of credit which is close to its limit, and the bank decides to reduce that limit, forcing you to quickly come up with the money to pay it down below the new limit, which can really throw a wrench into your plans. "The part that I find confusing is the loan/stock hybridization.  Why would the investor be entitled to a 30% share if he's also expecting to be getting paid back in full? This is the part that's making me scratch my head.  I can understand giving equity and buying out later.  I can understand giving equity with no expectation of loan repayment.  I can understand loan repayment without equity.  I can even understand collateralizing the loan with equity.  I can not understand how ""zeroing out"" the loan still leaves him with a claim on 30% of the equity. Would this be more of a good will gesture as a way to thank the investor for taking a chance?  Please forgive any naivety in my questions." It's definitely NOT a good idea to pay off one of the smaller loans in your case - a $4k payment split across all the loans would be better than repaying the 5% / $4k loan completely, as it's the most beneficial of your loans and thus is last priority for repayment. A payment that splits across all the loans equally is, in effect, a partial repayment on a loan with an interest rate of 6.82% (weighed average rate of all your loans).  It's not as good as repaying a 7% loan, but almost as good. It might be an option to save up until you can repay one of your 7% loans, but it depends - if it takes a lot of time, then you would've paid unneccessary interest during that time. They offer a coupon that is 40% to 60% the actual amount that it could in theory offer, if not for delinquent cases.... the banks pocket the difference in the name to be able to pay up consistently..... not a pretty picture but it covers their ass The terms of most mortgages usually include the requirement for tax escrow. Some banks will let you handle your own taxes once you loan to value drops below 50%. It's annoying that you lose the use of your own funds, I agree. It can't hurt to write a note to the bank and see it they'll waive escrow. You should definitely pay the remaining loan amount as quickly as possible. A loan in bad debts means that Bank has written it off books as its a education loan and there is no collateral. The defaults do get report to CIBIL [Credit Information Bureau India] and as such you will have difficulties getting credit card / new loans in future. Talk to the Bank Manager and ask can you regularize the loan?  There are multiple options you would need to talk and find out; 1. You can negotiate and arrive at a number. Typically more than the principal outstanding and less than interest and penalties charged. 2. You can request to re-do the monthly payments with new duration, this will give you more time. 3. May one time large payment and subsequent amount in monthly payments. At the end its Bank's discretion whether to accept your terms or not. That's why they're taking the deal. But it's not like they completely stole all that money. I don't have any stats, but I'd assume most of those people who got their loans are still in their homes. (Sorry, I could be way off. Please correct) But they still are bastards for not letting me refinance. Could have just been because they saw this penalty coming. Basically isn't this like if they loaned a bank 400b with 401b due tomorrow, and then the bank took the same loan the next day? Gross exaggeration I know, but I just want to make sure that is the way this works. That's tricky. Typically you lock in the minimum monthly payment when you close the loan. You can pay more but not less. Options: You should read the provisions in your offer and any counteroffer that was signed before paying the earnest money, but generally if the appraisal comes in low, the price has to be adjusted. If you can't get a mortgage (because the appraisal is too low) the next guy usually can't either. Unfortunately without more information (the documents that were signed and the locale, to know which laws might be applicable) I can't tell you with certainty that you'll get your earnest money back. It sounds like there are no provisions in the loan document for how to proceed in this case.   I would view this as creating a brand new loan. The amount owed is going to be (Principal remaining + interest from 2 years + penalties).  If you created a new loan for 13 years, that would not be how I would expect a lender to behave. I would expect most repayment plans to be something like make double payments until you are caught up or pay an extra $1000 per month until caught up and then resume normal payments. This is dumb. The sub company will lose money but the parent company will pay taxes on the income they made off of expenses to the subcompany.  This doesn't systematically reduce their risk either. Banks will loan more money if the parent company is liable to pay the bills if the sub company can't. So yes, a bank may make a loan to the sub company without any liability on the parent company, but its going to be a very small loan compared to what they would've given the parent company. From your question, it seems your problem is that you have a company that wants to make a deal, but does not currently have enough money to go through with it. Therefore it needs to raise capital. Assuming that you cannot get a loan from a bank and you do not want to seek funding from other sources, the two owners must provide the funds themselves somehow. Option A: The easiest and fairest way to do this is for the two shareholders to provide 75%, and 25% of the funding as a loan to the company. They will provide this loan knowing it may not be paid back if the company goes under. Note that it would not be fair for one of the shareholders to provide more, as that shareholder would be taking all the risk, while the other still reaps the rewards (although you could add a large interest rate to account for this). Option B: But say one of the shareholders cannot provide additional funds. In that case, the company should issue new shares, and each shareholder can purchase however many of the new shares he/she wants (each shareholder is entitled to purchase at least 75% or 25% respectively, but does not have to). The result of this may be that company ownership percentages have changed after the capital raising. This is more complex as it require valuing the company accurately to be fair, and probably requires reporting to a government (depending on the jurisdiction). To add to this, that risk is really only a problem if you don't have the cash flow to service the debt. If the surplus dips but your ultimately profitable on whatever trade you made, you're okay. If you default, you're not okay.  Volitility relative to loan term effectively. "I'm going to give a simpler answer than some of the others, although somewhat more limited: the complicated loan parameters you describe benefit the lender.  I'll focus on this part of your question: You should be able to pay back whenever; what's the point of an arbitrary timeline? Here ""you"" refers to the borrower.  Sure, yes, it would be great for the borrower to be able to do whatever they want whenever they want, increasing or decreasing the loan balance by paying or not paying arbitrary amounts at their whim.  But it doesn't benefit the lender to let the borrower do this.  Adding various kinds of restrictions and extra conditions to the loan reduces the lender's uncertainty about when they'll be receiving money, and also gives them a greater range of legal recourse to get it sooner (since they can pursue the borrower right away if they violate any of the conditions, rather than having the wait until they die without having paid their debt). Then you say: And if you want, you can set a legal deadline. But the mere deadline in the contract doesn't affect how much interest is paid—the interest is only affected by how much money is borrowed and how long has passed. I think in many cases that is in fact how it works, or at least it is more how it works than you seem to think.  For instance, you can take out a 30-year loan but pay it off in less than 30 years, and the amount you pay will be less if you pay it off sooner.  However, in some cases the lender will charge you a penalty for doing so.  The reason is the same as above: if you pay off the loan sooner, you are paying less interest, which is worse for the lender.  Again, it would be nice for the borrower if they could just pay it off sooner with no penalty, but the lender has no reason to let them do so. I think there are in fact other explanations for these more complicated loan terms that do benefit the borrower.  For instance, an amortization schedule with clearly defined monthly payments and proportions going to interest and principal also reduces the borrower's uncertainty, and makes them less likely to do risky things like skip lots of payments intending to make it up later.  It gives them a clear number to budget from.  But even aside from all that, I think the clearest answer to your question is what I said above: in general, it benefits the lender to attach conditions and parameters to loans in order to have many opportunities to penalize the borrower for making it hard for the lender to predict their cash flow."