How to Qualify for a 100% loan - and what they don't tell you on TV
- What are 100% LTV Loans and how to get one
- Should you even get one?
- Pros v. Cons
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What are 100% LTV Loans and why Investors Love them
Definition of 100% LTV loans – (also known as ‘Zero-Down’ or no ‘no money down loans’) financing were the lender provides all of the funds to purchase the property. In those cases, buyers do not have to provide any out-of-pocket cash which makes this loan product very attractive to first-time investors.
There are dozens of real estate guides, television infomercials, online courses, and weekend-long seminars built on the idea that you can purchase real estate ‘with other people’s money (OPM)‘ It is possible to get a 100% LTV loan for financing property – but they rare and require very specific set of circumstances to qualify.
What is the best way to get 100% LTV financing on real estate?
Before we get to list, it is important to understand why 100% financing for real estate is so rare. The very idea of 100% full financing is goes against the very idea of loan secured by a collateral. After all – if you find a property and want someone else to pay for the whole thing – why shouldn’t they just buy it themselves? Of course, lenders usually don’t want to buy real estate, they just want to service loans.
A hard money loan (or any real estate loan for that matter) is always secured by real estate collateral – a house, income property, apartment building, or even a billboard. In the event the burrower can’t make the monthly payments, the lender can take the property and recover the capital they invested in the burrower.
Simply put, 100% LTV loans are zero risk to the burrower and very high risk to the lenders. After costs and lost interest, the lender will incur a loss if they foreclose on a fully funded property. And yet, 100% LTV loans happen all the time. The secret is to understand the difference between loan to cost and loan to value.
The best way to secure 100% financing for real estate is to purchase properties at a deep discount. For example – you spot an 8-unit apartment building in a great location and make a low-ball offer to purchase it directly from the owner. If you manage to purchase the 8-unit for a 50% discount, you can use the equity ‘gain’ as your down payment to finance the deal. Note that a 10% discount won’t cut it, lenders will look for a substantial discount from market value.
Purchasing wholesale property under some kind of distress is a popular way to acquire real estate with no money down. You may still have to shell out cash for closing costs, commissions, or just to show the lender that you have some skin in the game.
Should you even get a 100% LTV hard money loan?
- You can purchase property with no money out of pocket
- Aside from time, almost no potential loss to the investor
- Maximum leverage gives you an opportunity to purchase another property with the capital you have
- Higher monthly loan payments – limiting your cashflow from the purchased property
- Harder to qualify for a zero-down loan – you will work a lot harder to get a 100% ltv loan compared to a regular hard money loan, which is around 70%
- Higher rates and fees
Qualifications and Requirements
Applicants seeking 100% financing should be ready to qualify under the following criteria:
- Appraisal – the subject property will have to be appraised for significantly higher than the purchase price.
- Minimum Loan Amount – $150,000
- Upfront costs – appraisal + loan deposit (mandatory).
- Subject property must be in a strong location.
Seller Carryback - Creative way to get a 100% LTV Financing
The most popular way investors get 100% financing is seller carrybacks. A carry-back is when a seller agrees to sell you a property and act as a lender, essentially lending you the purchase price for monthly payment of principal+interest. Some hard money lenders will accept a seller carry back in the second position in lieu of a downpayment.
Seller will always have to accept 2nd lien position in order for this to work. You will still have to qualify, and it won’t be easy – but this is a popular way to get a 100LTV loan to fix and flip or purchase.