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!
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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
Great article! I'm still a little foggy on the Refi in 45.......
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.
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!!!!!!!!!!!!
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
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.
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.
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?
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?