Ask Cornerstone: Can I get a no-money down hard money loan with good income and credit scores?
My family and I have been studying some books on how to project plan and renovate homes for flipping. Our goal right now is to find a good hard money lender that can work with us.
My situation is that my family are residents in other states, outside of California where I live. They will be applying for the loan because they probably have sufficient income to qualify. My role, living in California, will be finding the property and making the purchase since I'm a real estate agent that can do the buying and selling. We are also researching a few contractors to help in the remodeling process.
We are currently looking for a good hard money lender that can give a equity based hard money loan. If it's necessary, we would also look for an investor to contribute any down payment.
A property of interest that recently expired from the MLS was listed at $1.1M. It's in bad state of disrepair. I estimate I can offer $900K for it because of its state (plus having the seller pay for the buyer's closing costs.)
Do you think I can find a hard money lender for no money down given our ability to pay? What's a realistic scenario? Thank you.
By looking to eliminate down payment you are trying to eliminate what is most important to equity based hard money lender (HML). Equity is what gives security to HML that if everything goes wrong and they have to foreclose and wholesale the property that they will still get all their money back. HMLs rely on equity and not on your FICO score or your net worth. Many HML do not care where the equity comes from. It can come from a partner, 2nd position loan or additional property with necessary collateral. Here's the process that an typical HML would go thru in deciding whether to make a loan on the property you described. First you would have to provide the following: a. a signed purchase contract to buy the property, b. Itemized cost of repairs, c. ARV value of the property, d. Bank statement showing that you have enough money to pay for all loan closing costs including 25% down payment and 2 to 3 loan points and enough of reserve to pay 6 month of payments. As you can see it is starting to be a substantial amount of money. With $900,000 purchase price you would need the following:
- $225,000 – down payment
- $13,500 – Points
- $37,125 – 6 month of payments @ 11% (paid monthly)
- $800 – loan docs
- $276,425 – Total Funds required (some or all of this funds can come from the partner or the 2nd loan)
Assuming that renovation costs is $127,000 the refurbished property would have to sell for around $1,285,000 price for a flip to be safe and profitable. Since you are new at flipping I would suggest starting with a less expensive property maybe around $300,000 purchase price with $428,000 ARV. This way, if things go wrong the problems are much easier to handle. I would also suggest for you to attend Numerous “Real Estate Investment Club” meetings in your area. It is good place to meet other people with same interests. Also clubs provide very informative educational seminars. If you visit our blog you will find a list of different Investment clubs you could attend.
You can also calculate a good purchase price for your investments by using our flip calculator spreadsheet. If you project the after repair value (ARV), you can back into an appropriate purchase price and understand the costs for any flip project.