If you are new to house flipping, and have limited resources, you may be wondering if it’s possible to get a loan with no money down. Here, you’ll learn about some options, in addition to alternative fix-and-flip financing methods.
Fix and flip loans allow real estate investors to purchase and renovate properties for resale at a profit These short-term loans provide the capital needed to buy and remodel a home before flipping it
Traditional lenders usually require a 20-25% down payment on fix and flip loans. But is it possible to get a fix and flip loan with no money down?
In this comprehensive guide, we’ll explain how these unique loans work, where to find lenders willing to offer 100% financing, and the pros and cons of using a no money down fix and flip loan to fund your next investment property purchase.
What Are Fix and Flip Loans?
Fix and flip loans, also called rehab loans or bridge loans, are a financing option for real estate investors who want to:
- Purchase a property
- Renovate or “fix” it
- Then quickly “flip” or resell the home for a profit
These short-term loans provide funds to purchase a property in need of repairs The loan proceeds can also be used to cover the costs of renovations and repairs,
Typical loan terms range from 6 months to 2 years Interest-only payments are required during the loan period Then the investor must repay the loan in full or refinance into longer-term financing when the home sells.
Lenders view fix and flip loans as higher risk than traditional mortgages. As a result, they require a lower loan-to-value ratio (LTV), usually around 70-75%. This means a larger down payment, often 20-30% of the purchase price.
But some lenders are willing to offer fix and flip financing with no money down through 100% LTV loans.
Can You Get a Fix and Flip Loan With No Money Down?
Yes, it is possible to get a fix and flip loan without a down payment, but 100% financing options are less common.
Most lenders will expect you to have some skin in the game by requiring a 10-30% down payment. But if you search thoroughly and have strong qualifications, you can find lenders willing to offer true no money down fix and flip loans.
With 100% financing, the lender provides the full purchase price plus estimated renovation costs. You’ll pay no money out of pocket at closing.
However, the lender will likely require you to provide some type of additional collateral or get a guarantor to secure the loan.
Where to Find No Money Down Fix and Flip Loans
Rehab lenders known for offering 100% financing fix and flip loans include:
-
Pine Financial Group – Provides up to 100% LTV and charges no application fees. Closing can happen in as little as 5 days.
-
Rehab Financial Group – Offers 80-100% LTV rehab loans from $50K to $3M. An option to buy down rates.
-
LendingHome – 100% financing available including purchase price, rehab costs, fees and closing costs.
-
Citivest – No minimum FICO score requirement and offers 100% LTV bridge loans.
-
Lima One Capital – Will finance up to 100% of the purchase price and rehab budget.
When researching lenders, look for ones that advertise 80-100% LTV or “no money down” fix and flip loan options. Focus on lenders with a strong reputation and looking for deals in your target real estate market.
Pros and Cons of No Money Down Fix and Flip Loans
Like any financing option, no money down fix and flip loans have advantages and disadvantages to weigh:
Pros
- Requires no upfront cash investment
- Quick access to capital for real estate deals
- Potentially higher returns since no money out of pocket
- Interest and rehab costs can be rolled into loan
Cons
- Higher interest rates and fees than loans requiring down payment
- Need to provide collateral or get a guarantor
- Risk of repaying loan before you resell the property
- Harder to qualify and not always available
While 100% financing makes these loans accessible, the higher rates and balloon repayment responsibility add risk. Run the numbers carefully and have a exit strategy before using this option.
What is Needed to Qualify for a No Money Down Fix and Flip Loan?
Fix and flip lenders have stringent requirements since these loans carry more risk. Expect lenders to review:
-
Credit score – A minimum 620 FICO score is typical, but some lenders may go lower.
-
Income and assets – Lenders want to see you can make payments if the flip takes longer. Expect to verify gross monthly income of at least $5,000.
-
Flipping experience – First-time flippers will have a harder time qualifying. 1-2 years of experience flipping houses full-time is preferred.
-
Collateral – Most lenders will require you to pledge additional collateral to secure the loan.
-
Exit strategy – Lenders want to see a solid plan for selling the property quickly to repay the loan.
-
Skin in the game – While the loan requires no down payment, most want to see you have some personal cash invested in the deal.
The property itself and your rehab budget projections will also be scrutinized before approving a no money down rehab loan.
How to Get a No Money Down Fix and Flip Loan
If you need financing for a flip project, follow these steps:
1. Find a good deal – Crunch the numbers to calculate your profit potential after repairs and the sales price. Lenders will review your profit projections.
2. Research lenders – Search for fix and flip lenders in your area offering 80-100% LTV loan programs. Compare interest rates and terms.
3. Submit your application – Provide all required financial, employment, and experience documentation. Be ready to disclose collateral assets.
4. Get pre-approved – This shows sellers you can move quickly. But expect another round of underwriting before final loan approval.
5. Make an offer and enter contract – Include financing and appraisal contingencies in your offer terms.
6. Complete underwriting – Final loan approval comes after the lender’s underwriters re-review your application, assets, the purchase property, and your rehab budget.
7. Close on the property – Funds are held in an escrow account and released in draws as repairs are completed.
The approval process takes 1-2 weeks. From offer to closing can take 30-45 days. Then once repairs are done, you must sell the home ASAP and repay the loan.
Alternatives to Get Financing for Fix and Flips
If you don’t qualify for a no money down rehab loan, here are some other options to get financing:
-
Hard money loans – From private lenders and faster to close but higher rates. Usually 60-75% LTV.
-
Home equity loan – Tap the equity in your primary residence if you have sufficient equity.
-
Business credit cards – Put repairs on cards offering 0% intro APR periods.
-
Personal loans – Unsecured loans from online lenders like Lightstream offer lower rates than credit cards.
-
Private money – Connect with high net worth individuals willing to bankroll your flips for a share of profits.
-
Crowdfunding – Platforms like LendingHome enable investors to fund your projects.
-
Cash-out refinance – If you have existing properties with equity, cash-out refinance to access funds.
Each financing method has pros and cons. Explore all options before deciding which aligns best with your business objectives.
Tips for First-Time Fix and Flip Borrowers
If it’s your first time getting a fix and flip loan, keep these tips in mind:
-
Start small – Don’t take on a huge project right out the gate. Begin with a smaller house needing cosmetic fixes.
-
Build a strong team – Having experienced contractors, real estate agents, title officers etc. can make or break your flip.
-
Create detailed budgets and timelines – Underestimating repairs or timeline to sell can put you in a cash crunch. Plan for unexpected delays or overages.
-
Keep some cash reserves – Even with 100% financing, have cash available for cost overruns so you don’t run out of money before finishing repairs.
-
Have your exit pre-planned – Know your target sales price and expected net profit before buying. Today’s shift in the housing market makes this especially critical.
-
Be conservative – It’s better to overestimate expenses and time to completion than be too aggressive, especially on your first few flips.
Proper planning, preparation, and conservative projections are vital to flipping success when using a no money down loan.
FAQs About No Money Down Fix and Flip Loans
How much can I borrow with a no money down fix and flip loan?
Loan amounts can range from $100K up to several million dollars depending
Fix-and-flip loans generally have a lower loan-to-value ratio
Lenders typically view fix-and-flip loans as risky propositions. To hedge against such risk, they are more conservative in the loan-to-value (LTV) ratio they give a borrower. An LTV ratio is ratio of the loan amount a lender will provide to the appraised value of the property they intend to purchase with the loan.
For example, the LTV of a conventional mortgage is usually around 80%. The borrower provides the remaining 20% needed to purchase the property in the form of a down payment. With a fix-and-flip loan, lenders may only award an LTV ratio of 65-70%, which means the borrower must come up with 30-35% of the property’s value as a down payment.
Qualifying for a fix-and-flip loan with no money down
Obtaining a fix-and-flip loan with no money down is difficult because of the lower LTV lenders apply to these types of loans. However, one method to come up with the additional cash needed for the down payment is to offer additional collateral (other than the fix-and-flip property) as a security interest in the event you default on the loan. The property you use as collateral will need to have a value that matches (or exceeds) the value needed for the down payment money. Examples include:
- Other real estate, such as your primary residence
- Investment accounts
- Vehicles
- Any other item of significant value
As an alternative, a borrower may be able to find someone to guarantee the loan. As a guarantor, that person agrees to pay the debt of the borrower in the event of a default on the fix-and-flip loan.This video explains two ways to get 100% financing (i.e., no money down) with a fix-and-flip loan.