Hey, friends Kris Krohn here with Limitless Wealth TV and today, we've got
a question from Sahil about equity. Like, what's real equity? What's fake
equity? What's equity? Hi Kris, my name is Sahil and so today, I'm along with the
question that one of the guy from Canada is saying that you cannot buy a house
with the equity. So let's say my house worth for $200,000 and I got for one
eighty thousand dollars. Seller is selling for $180
so $20,000 is my equity here. So before getting mortgage, you're
going to apply the mortgage. The mortgage broker or the bank right? So you
cannot take a mortgage of let's say you need 20% down payment for example, so
forty thousand it should down payment so you need one sixty thousand dollars
because you're buying a house with the market value so if banks knows that
sellers giving you for one eighty thousand dollars instead of that you're
buying for $200,000 so, you made a false statement with the
bank. You made a false mortgage statement with the bank. So Kris, is that true what
do you think? because I have seen people talking about this, you know so that's
why I'm just really shocked because I was already following your path.
What did you say that how the game plan was? But some people just distracted me
because of these things. So please Kris help me do the laws and principle. All
those changes in different countries. So please try to
explain that Kris because this is very important for me because this is the
only way the equity to decrease the risk. So without but
without equity I cannot buy the you know the property. So Kris please talk about
this. Is this fraud? or Is this good? So what kind of suggestions you can give?
Do you think that it's different in all countries? So please
suggest Kris this is very important. Thank you. Sahil thank you so much
for asking this question. In fact it's a great question and I can really see why
there's confusion. So for everyone else here that's watching this, this is the
scenario as far as I understand it. Let me share the numbers back as far as I
understand them. We're talking about a house that has a value of $200,000 but -
there's a purchase price on it for a $180,000 and
right now when it comes to getting the bank, the question is, "I need a down
payment, how much is my down payment because I have $20,000
of equity?" Well, Sahil here's the first thing that I
want you understand. The bank doesn't care that it's worth $200,000
and you're getting it for a $180,000. The bank
doesn't care if it appraises for 180 and the bank doesn't care if it appraises
for $200,000. The bank is not on the business of giving a rip of what
your equity position is on the house. The only thing they care about is making
sure that they're lending on a home at or under its value and not over. Because
why would a bank want to do a loan for 200 and 20,000 on a
house worth $200,000. So regardless of where the appraisal comes
in, they're only interested in the purchase price in knowing that at least
that's a fair market deal. Now is there in fact $20,000 of equity here? Yes there
in fact may be. You may have run comps, it may actually be worth that $200,000
but remember home is only worth what someone is willing to
buy it for. So even though you think it's worth 200,000, you're
willing to pay how much?$180,000. Now investors people
like you and I, we increase our net worth by $20,0000 when we buy a
smart house like this but in the eyes of the bank, they're going to say, "hey you're
buying it for 180, the appraisal came in at 180, you need your 20% down payment.
20 %t of a hundred and eighty thousand is going to be a down payment
of $36,000, you might have $4,000 in closing costs and at the
end of the day you're going to be bringing in $40,000. Now
this 180 is going to get paid down by $36,000 which means
that what you're actually going to owe on the property when you actually move
to buy it is a $140,000. Where did I get this?
180,000 minus your down payment, it's going to be a $144,000
Now, you have a house that you owe a $144,000 on
worth how much? $200,000. Now, how much equity do you have? Well, now you
have a total of the difference between $144,000 and
$200,000. Now you have $56,000 of equity. Now $36,000,
that was your down payment that you put into it, but that's
not what your equity looks like. Now, some point if you're saying to yourself, "hey
on paper I'm worth this extra $20,000, how do I actually get
that money in my hand? There's really only a couple of ways that you can do it.
the first way, is you could refinance the house. Maybe the bank will let you
actually re-appraise the property and actually allow you to take out up to
80% of the value. Well, 80% on up to $200,00
is going to be a $160,000, there's about $14,000,
$16,000 that you could take out of it. Or you could sell the
house and that would be another way of getting equity or you could have a
private investor come in and actually collateralize the property and give you
some money and that could be another way of actually getting a check and getting
something that some of the money out of the property. Hey, Sahil, thank you so
much for asking that question. For the rest of you watching this video, guess
what? You can also submit video questions and then when you do, we're going to take
some of them and produce videos just for you to help create more clarity and more
understanding on how real estate and finance works - for you. Thank you so much
for watching today and hey, guess what? Hike over to my website where I can
share with you more hands-on what it is to be personally trained by me and my
staff to help you become a rockstar investor.