No Money to Invest? Hard Money Isn’t the Only Answer!
We’re all looking for a way to acquire investment real estate with no money out of pocket, right? It’s called leverage. Let’s talk about a few strategies to get you going without having to take the lock off your wallet.
First off, good credit is not necessary to invest in real estate. There are hard money lenders out there who will lend on the collateral instead of your credit score. So don’t let this be a barrier to you entering the REI arena. With that said, if you want to maximize your profit potential and get stellar rates on your loans that equate to smaller monthly mortgage payments, it is essential that you make an effort to know your credit score and work toward improving it.
Most full doc “A” paper mortgage loans out there will go as low as a credit score of 620. If you need a higher loan to value (LTV) of say 90-95% and you want to limit your down payment OR if you want to go with a stated doc loan (meaning your income and assets are stated but not verified), you’ll need a score of at least 680. 700’s is a great place to be when investing in real estate.
That’s a strategy if you want to pay a down payment and work with a regular lender. I personally don’t like spending ANY money to acquire a property OR working with a regular lender. Here’s a strategy you can follow to do what I did.
First, find what’s known as a portfolio lender OR a broker that has a portfolio lender or funds loans out of his or her own warehouse line. I found a small credit union through my broker that funds loans up to 100% of the sales price on non-owner occupied properties as long as the LTV is no more than 80%. Some of you may not know how cool this is, so I’ll explain. Most lenders, for purchases, calculate loan to value ratio (LTV) on the loan amount divided by the LESSER of the sales price OR appraised value. So, this is no great deal for investors who are negotiating a killer deal on a property. You still could have a high loan to value (LTV) because the sales price is low even if the appraised value is high. Get it?
My portfolio lender uses the appraised value instead of the lesser of appraised value vs sales price as long as I can refinance within 45 days. So, the next part of the equation is to find a loan program that has no appraised value seasoning on refinances. Viola, you have just created your own zero down investor loan. Get out there and take a look to see who you can develop a relationship with in your market to make this happen for you. Or better yet, get a good broker on it and buy, buy, buy!
Great article! I'm still a little foggy on the Refi in 45.......
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Be nice, I'm new... You would get money from this portfolio lender to do a deal, only to have to refinance in 45 days?? Is that correct?? Sorry, can you spell this out in a litte more detail for those of us trying to learn the basics?? Thanks!
Portfolio lenders have their own set of rules. In the case of my portfolio lender she says she is happy to loan against appraised value on the purchase BUT the loan has to be paid off (refinanced) out of her line within 45-60 days. Her board says no long term deals under this scenario.
So the key is to find someone to do a rate and term or limited cash out refinance and waive the appraised value seasoning requirement which is usually 12 mos. These investors WILL NOT loan aon appraised value for the purchase - only the refi.
It's using 2 loans in quick succession to fund 100% of the puchase price and fees.
the Bank of Beal, located in Plano Texas.
They were buying a portfolio of loans from a local mortgage shop here in town. My client bought a piece of property for $320,000. The mortgage company made the loan, (one) loan for $320,000. The appraisal was for $320,000. My client paid two points for the loan and an interest rate of 5.5% 15 years.
This loan was sold with the portfolio and everybody is happy.
Is this a standard that the Portfolio has hidden in its group a loan for 100% of the purchase price. Even though the appraisal qualifies it at 100%. I thought such loans were supposed to be seasoned or at least somewhere i the 80 to 90% range. Has the world gone mad or am I once more left behind in the accumulated trash of history??
Lucius
Dear Kathleen,
This is known as a "short gun" cause you have to replace that loan in a very short period of time. Usualy done on sale.
It is a good tool but a little scary. I usualy use the old fashioned approach if i have time and there is not a bidding war on. I just wait and put the sale together with a downpayment and the loan for the balance. This way I do not bite my nails and break the speed record as I dash from bank to bank or lender to lender or buyer to buyer.
Cheers Lucius
Most property is easier to find financing for once your on title. The problem is getting the deal closed in the first place, hence, this 45 day loan that gets the property in your name and then gives your time to sell/refinance into conventional financing instead of using "hard money" at 4-5 points and 14-18%.
Randall
Randal,
maybe you should try Smith Willey Finacial Group in DC. They loan at 12% and only one point.
I could not have said it better myself. But the only problem I see is people actually believing this. I am a firm believer of using the appraised value over the sale price all day long.
GOOD JOB!!!!!!!!!!!!
Thanks! I am too, but it sure took me a long time to find someone to do it on the purchase!
i've got a program for ya 95% LTV non- owner occupied that will allow 2% of purchase price to be paid by seller towards closeing cost min fico of 620.
No thanks. I'll stick with my 100% financing. Remember, the whole point of this is that there is NO money out of pocket. ZERO.
Hey there gunhead5. If you don't mind I'd like to know who is doing this if they are a chain. Also How about this....90% of subjest to appraisal. Property price 100K with rehab of 10K value after rehab is 150K; laon amount 135K; 100k for purchase price then the remainder (35k) is put into account for you to draw off of. Must have good credit scores (650 or better) this is the best I'v found here in La. Banks (ibberville or bank of Plaquemine) Always open to option though. Any help would be appreciated!!!
No, this lender agrees to loan on appraised value up to 80% for a max of 45 days. She does it for a point and it's out of her line in 45 days. No harm no foul.
You can find a lender with limited cash out refinances to waive appraised value seasoning requirements all the time. Some for free some for .125 - .250 exception pricing. Still worth it to walk away with a 100% NOO loan!
Do you have a source for raw land loans. All the lots are proper and existing lots within existing subdivisions. Most have houses on either side, it is just that the original builder skipped one only god knows. I am gathering lots for the container houses. so while the building department play games prior to issuance of permit. I gather any way I can. I estimate if I do these in fills and stay about 50% under market. I will have established an acceptability of the Modernistic, steel, gl*****, sharp angle house. So that when when we really roll and put them in areas not so attractive, the architectual statement will keep them desirable. Here will be the lower level of our economic ladder living in a really advanced and I hope desirable house.
anyway thats my plan. As I said do you have any sources for loans on just raw land. Time of Purchase?
Cheers Lucius
I personally do not.
Some Lingo clarification please. What exactly to you mean by a seasoned appraisal? Are you saying that most sources would like to wait 12 months before refinancing your property?
Thanks Bill
Yes. Most lenders say even on a refinance you have to wait 12 mos to use the appraised value.
To Lassitermarketing,
Wonderful article! I found a lender who can do the refinance with no problem. He is having a hard time finding a portfolio lender. What would be the best way to find instituitions that fund these types of short term loans? Thanks in advance for your response.
Avery
This is to lassitermarketing in your opening of this forum you made a statement on a stated income loan doc that you needed at least a 680 fico . I'm sorry to say that is very incorrect there is a program for stated income doc 100% CLTV, minor lates, 1 month out of bankrupcy,1 month NOD, no MI, with a max loan limit of $400,000.00 with a FICO of 580 and I'm not trying to spam any body I would just like to share the fact to let people know that alot has changed as far as getting loans go in todays market. check around you'll find it.
Bet it's not NOO with no appraised value seasoning.
Your exactly right......I purchased three row houses in Baltimore under that program. My credit score was a 580 and they qualified me for a 95% LTV with the owner or wholesaler who put us together gifting the 5%.
Hey there I'm interested!!!!!!!!! Could you please tell me who will do this!!! PM me.
Thank you
MIke
Who offers such a program??
Mike
Actually, all of your comments could be correct, depending on what part of the counntry you live in. What is good in Florida may not be good in Iowa. Here fannie Mae will take a modular as a SFR but not a manufactured home. So this site is very misleading as to what can be done and what can't. I have read many posts and articles before joining this site. I have not seen one responce that would work in all 50 states. The only one I know is called CASH. So let's not get critical of people.
NIce job, Avery. My advice is to seek out the smaller lenders like credit unions. My portfolio lender is a small credit union about 2.5 hrs south of Denver and she funds loans only on props in CO and WY.
Even if the small portfolio lender doesn't have a program on the purchase money like that now - tell them to take it to their board or credit policy dept and make sure you let them know that you will never have them fund a purchase loan unless you already have final approval on the takeout. That goes a long way, too.
Good Luck!!
Hi Susan,
I've got several contacts that I have talked to in with regards to starting a purchase program. The only thing I'm a little fuzzy on is getting final approval on the takeout. How can you get approval on the takeout if you have not closed on the portfolio loan?
You approve both loans at the same time.
Hi Susan,
I just wanted to let you know that I put together a program with a credit union in Ohio that will do the short term financing and another lender who will do the refinance without requiring seasoning. Thank you for sharing this wonderful idea. I am putting together my first deal and will be closing on April 20th. I'll keep you posted on how it goes. YOU ABSOLUTELY ROCK!!!!!!
Avery that's great. Does the Ohio lender lend in all 50 states? If so I have some leads for you. Also, one piece of advice is to charge ALL the orgination or at least the majority of it on the purchase loan. We were charging it on the refi and just got burned on a deal.
Hi Susan,
They are licensed in all states except Hawaii and Alaska.
I would sure like to know the names of these lenders. As a new investor...it sounds like a dream come true to buy with no money down and be able to count on a few lenders when you need them. Any info you can p***** along would be appreciated!!!
Curt
Avery,
Can you please share who the lender is in Ohio?
Thanks,
Chris
**Please See My Profile**
Hello I am new to investing. (But I have been researching for 3 years and too scared to get my feet wet
I would also like the name of these lenders if you would, and any info you could muster up. Thank You.
How are these 45 day short gun lenders making money on these deals, if there is no money down? Just a couple payments, and that is a good investment for them? Not that banks do anything but print money out of thin air, but still....
Do they put all sorts of fees on top that get paid out in the lien when the refi happens?
Mine charges 1 point for the money for 45 days. If the borrower has to make a payment during that time or they are late with the refi the payment is 7.5% amortized over 5 years which is a hefty payment.
Fees are standard.
that certainly is some fine print to pay attention to! Thanks for the clarification...
How do you find these 45 day lenders? Can you PM me their information?
I tried locating SMith Willey Financial Group in DC but couldn't find them on the Internet. Do you have a name or address? Thanks Holli
Maybe I missed something but how come you just cant skip the short term financing and get the financing from the refi lender? im assuming that within the short 45 day period there isnt much appreciation?
Not sure how you can refi a house before you own it. Also the max the purchase lenders will loan is 100%. In our scenario we get 100++%.