Hard Money Experts

Everything You Need to Know About 100% Hard Money Financing (Zero Money Down)

One of the benefits of hard money loans is that they can offer significantly higher leverage than traditional loans. Some, but not all, hard money lenders even offer loans up to 100% LTV, sometimes referred to as zero down hard money loans. However, this is only in select cases. In most cases, 100% hard money financing refers to lending up to 100% of the property’s purchase price, but only when the purchase price is at least 5-15% lower than the actual market value.

In most cases, these loans are issued for borrowers who want to do fix and flip deals, as the property’s value will quickly increase, lowering the loan’s LTV ratio and decreasing the risk for the lender. In many of these situations, the lender may also lend out up to 90% of the repair costs.

In this guide, we’ll discuss everything you need to know about 100% hard money financing, including prospective terms, 100% fix and flip loans, alternatives to 100% hard money loans, and the best 100% hard money lenders in the industry today.

• Loan Term: 6-36 months, interest-only options available.

• LTV:

  • Up to 100% LTC (loan-to-cost) for sufficiently undervalued properties.

  • Up to 100% LTV with cross-collateralization.

  • Some lenders may also provide up to 90% of repair costs for eligible fix and flip deals.

• DSCR: 1.0x minimum

• Interest Rate: Generally starting at 12%

• Origination Fees: 2-6%

• Credit Score: May or may not be required, depending on the lender.

• Appraisal: Required prior to funding. 

• Closing Timeline: Some lenders close in as little as 24 hours, while others may take between 3-4 weeks to close.

Pros:

• Lower amount of money down.

• Less risk and higher potential return.

• Allows borrowers to do more deals at once.

Cons: 

• Interest rates are often the highest of any type of hard money loan (often similar to hard money construction loans).

• Loan origination fees are still high, often between 2-6%.

• Loans are full-recourse.

Most 100% or zero-down hard money loans are issued for fix and flip deals. As we previously mentioned, the property’s increased value will reduce the risk for the lender. In many cases, these loans are based on the property’s after-repair value (ARV), and, in some cases, may be considered ARV loans. ARV targets for hard money lenders range from 75-90%, with most lenders going with the more conservative 75%.

For example, let’s say you find a property that you think will sell for $250,000 post-rehab. Let’s say that repair costs are estimated at $30,000, and closing costs are $15,000.

$250,000 * 75% = $187,500.

$187,500 - $15,000 - $30,000 = $142,500

Therefore, the maximum purchase price for the property would be $142,000 if you want a hard money lender to give you 100% of the purchase price. In this scenario, you would need to put no money down (except for closing costs, origination points, or application fees). Sometimes, but not always, you can convince a seller to pay part of the closing costs, or, if you’re really lucky, get the hard money lender to wrap the origination fees into the loan amount (though this rarely happens).

While 100% LTC (loan-to-cost) hard money loans are great, if the purchase price is about 75% ARV, you may need a larger loan to get there. In this case, you may be able to get a cross-collateralized loan, which we’ll mention in the next section.

Most lenders generally will not provide 100% hard money loans for properties that will not be substantially approved during the loan’s term. However, they may allow for 100% financing with cross-collateralization. This means the borrower will need to use another investment property as collateral instead of putting more cash down. This investment property will need to have enough equity to compensate for the additional risk of providing such a high leverage loan to the investor.

Cross-collateralization means the lender will have a second position mortgage on the second, “crossed” property. Cross-collateralization is not offered by all lenders, and will generally require a full appraisal on the second property.

This second mortgage will often be at a higher interest rate, sometimes up to 15%, so you will be paying both a first-position mortgage on your new investment property and a second-position mortgage on your existing investment property to obtain, on the whole, 100% of the value of the property you want to buy.

This can effectively allow you to close with no money down, even though you may (and probably will) still have to pay origination points of between 2-6% of the loan amount.

100% hard money financing can be expensive, and it certainly isn’t for everyone. Fortunately, there are several alternatives to 100% financing if you don’t have quite enough cash to close on the property you want to purchase. These include seller financing, rent-to-own or lease-to-own deals, assuming a loan, microloans, and crowdfunding.

1. Seller Financing

Seller financing is perhaps the best way to reduce the cash you need at closing and is one of the best alternatives to high leverage hard money loans. If you can convince the seller to finance enough of the property, you may not even need a loan at all! Seller financing agreements generally involve the current owner acting as a lender for a certain portion of the property, but there are a wide array of seller financing variations.

In many cases, to facilitate the sale of the property, the seller will provide the down payment for the loan, while the buyer pays them back over time at a pre-determined interest rate.

Another seller financing method is called a seller carryback, which means that the seller provides a second position mortgage to boost the overall leverage on the property. For instance, if a lender only wants to provide 75% LTV on a property, a seller may step in to provide a loan that boosts the overall LTV to 90%, allowing the borrower to provide a down payment of only 10%.

Not all lenders permit this, however, and generally still want the borrower to have some “skin in the game,” so this does not usually result in 100% financing. Keep in mind that second-position seller mortgages generally only apply to non-owner-occupied real estate, as lenders have found that allowing a second-position seller mortgage on owner-occupied properties is simply too risky due to the high default rate.

For commercial properties, investors can often get second-position mortgages as well, provided they have the permission of their original lender. These are called mezzanine loans, often start at $1 million, and have interest rates between 10-15%.

2. Lease-to-Own or Rent-to-Own Deals

Another way to avoid paying a high down payment is a lease-to-own or lease-to-rent deal. This is an arrangement made with a property owner where some of your monthly rent goes toward financing the eventual purchase of the property (helping you slowly build up equity). In many situations, the rent paid is higher than market-rate rent to give the seller an incentive to engage in the deal. Once enough equity has been built up, the renter mighy then get a loan to outright buy the property.

Because they already have equity in the property, that loan could cover close to 100% of the property’s remaining purchase cost. For example, if you built up 20% equity in a property in a rent-to-own deal, you would only need an 80% LTV loan to cover the remaining purchase costs. In some scenarios, this can effectively result in zero money down loan.

3. Below Market Value Purchases

While it may sound obvious, one of the best ways to achieve close to 100% financing is to purchase a property below market value. In this case (as previously mentioned) the loan is not a 100% LTV loan, but rather a 100% LTC (loan-to-cost) loan.

For instance, if you found a $200,000 property and convinced the borrower to sell at $160,000, and then got a hard money loan for $160,000, you would be purchasing the property with a 100% LTC, but only 80% LTV loan. This reduces risk for the lender, as they could likely resell the property for close to $200,000 if you defaulted on your loan.

However, 100% financing can still difficult to achieve, because lenders still want to see that you have some skin in the game, and is generally only for fix-and-flip deals.

Now that we’ve mentioned below market value purchases, how do you get a seller to agree to such a transaction? Well, there are a variety of methods. In general, if a property needs significant repairs, particularly expensive ones, a seller may be anxious to sell it before the property’s condition becomes worse. If you can close with a few days with a hard money loan, this could put you ahead of other buyers, even if they are offering significantly more money for the property.

Another way to negotiate for a lower purchase price is if the property has any liens or outstanding legal issues. This is an area in which you want to be very careful, as you could end up losing the property yourself, but such issues directly degrade the value of the property and could make it harder for the seller to find buyers at market prices, making your low-ball offer particularly attractive.

Below-market purchases can also be achieved though short sales, REO situations, and real estate auctions for foreclosures.

4. Loan Assumption

Another great way to invest in real estate with very little cash is to assume the current loan on a property, which will help you avoid paying a hefty down payment. However, this option isn’t for everyone, since not all mortgages are assumable, and the lender will still require you to meet their lending standards, which could include having a high credit score, a certain amount of income, and a clean legal and background check. However, keep in mind that the existing loan may not have much time left on it’s term, so depending on the loan’s term, you may still need to refinance quickly.

5. Real Estate Partnerships

Investing with a partner is another great way to reduce the money you’ll need to put down on a property. In most cases, the partner supplying most or all of the down payment takes a more passive role, while, in exchange for financing the investment, the other partner takes on managerial responsibilities, such as property management, leasing, repairs and maintenance, and taking the lead on both the purchase (and eventual sale) of the property. In theory, a partner could also provide you a small, off-the-books personal loan to help you with your portion of the down payment. Like other loans, this would be paid back over time with interest or even paid back as a balloon loan on the sale of the property.

5. Crowdfunding for Real Estate

Real estate crowdfunding occurs when many investors pool their funds to make small investments in a real estate project. For instance, instead of having one to two investors, a crowdfunding deal could have 10, 15, or 20. Crowdfunding can be done privately or on various online platforms. However, public crowdfunding could require you to step through more legal and financial hurdles, which could get expensive, particularly if your deal is small.

Crowdfunding can be used as a form of gap funding to pay your down payment before getting a loan, but it can also be used to pay for the entire purchase price of a property if you want to buy in cash. Debt crowdfunding can also be utilized, where the investors invest in lending the investor funds at a specific interest rate.

Like equity crowdfunding, debt crowdfunding can be used as gap funding to finance a down payment or to finance the entire property. In some situations, crowdfunding can be simultaneously used to fund both the debt and equity parts of a project. However, due to the added complexity, this is usually reserved for larger commercial real estate deals, not smaller investment projects.

6. Microloans

Microloans are small personal loans, typically issued by private lenders. They typically have higher interest rates, often similar to credit cards, and typically range in size from as little as $500 to upwards of $50,000. Microloans can be a great way to finance a property’s down payment, particularly if you can arrange seller financing for the rest of the deal. Microloans may can sometimes be used in conjunction with a hard money loan, though if a lender checks your credit or performs an asset check, they may not like that you are carrying this additional debt.

As we’ve discussed before, the number of lenders offering 100% hard money financing is somewhat limited due to the increased risk of these loans, but several major lenders still offer them. Some of the best-known lenders offering 100% property financing include:

1. DoHardMoney

DoHardMoney is a prominent hard money lender headquartered in West Jordan, Utah. They focus on fix and flip financing, gap financing, and other types of private money loans for small and mid-sized real estate investors. Their 100% hard money loan fix and flop lending program includes:

• Loan Amount: Up to $350,000

• LTC: Up to 100%

• ARV: Up to 75%

• Interest Rate: Staring at 12%

• Origination Points: Starting at 3.5%

• Zero Payment Period: No payments are required for up to 5 months.

• Credit Score: No minimum score is required.

• Income Verification: Not required

• Prepayment Penalties: None

2. ShermanBridge

ShermanBridge is an Irving, Texas-based hard money lender offering a variety of hard money rehab loans. Their terms are quite generous, but unlike many hard money lenders, they typically require borrowers to have great credit and prior real estate investing experience. Terms for their popular 100% LTC loan program include:

• Loan Amount: Up to $350,000

• Loan Term: 6-12 months with extension options

• LTC: Up to 100%

• ARV: Up to 70%

• Interest Rate: 10%-12%+

• Origination Points: 2-3%+ depending on experience level.

• Credit Score: 650-680% FICO score required.

• Real Estate Experience: Previous experience is required for some programs.

• Income Verification: Not required

3. Titan Funding

Titan Funding is a Boca Raton, Florida-based hard money lender. They offer loan programs such as traditional hard money, residential bridge loans, multifamily loans, commercial hard money loans, and fix and flip financing.

• Loan Size: $100,000 – $5 million

• Loan Term: 1-3 years

• LTV: 100% with cross-collateralization

• Bridge-to-Perm Loans: After property stabilization, borrowers have the option to convert their bridge loan to a permanent, fixed-rate loan with a 30-year term.