As a real estate investor, you may not have the luxury of getting approved for a traditional small business loan. Whether it’s a low credit score, a spotty payment history, or lack of down payment, you may find it challenging to find financing.
One option to consider: a hard money loan. Here, we share what hard money loans are, how they work, and where to find them.
Getting a traditional mortgage usually requires you to put down 20% of the purchase price of the home. But when real estate investors spot a promising flip they often need to move fast and may not have that much cash on hand. That’s where hard money loans come in.
Hard money loans allow real estate investors to fund deals with little or no money down. So how does it work, and where can you find hard money lenders who offer no down payment loans? Let’s take a closer look.
What Are Hard Money Loans?
Hard money loans are a type of short-term financing used by real estate investors, especially those who flip properties. The “hard” refers to the fact that the loan is backed or secured by a hard asset – real estate.
Private lenders provide these asset-based loans They are willing to take more risk than banks in exchange for higher returns Hard money lenders look primarily at the property’s value rather than the borrower’s credit score or income.
These non-traditional loans offer several potential benefits for real estate investors:
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Fast funding – Hard money loans can close in days or weeks, helping investors move quickly to secure deals.
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Flexible qualifying – Credit score and income are less important than the property’s value. This helps those who may not qualify for bank financing.
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Purchase plus rehab – Many hard money loans cover both the purchase price and renovations costs.
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No down payment – It is possible to get hard money loans that require little or no down payment.
Do You Need A Down Payment For A Hard Money Loan?
One of the biggest misconceptions about hard money loans is that you always need a 20-30% down payment like with a conventional mortgage.
In reality, many hard money lenders do not require a down payment at all. The property itself and its potential resale value after repairs serve as the collateral for the loan.
That said, some lenders may ask for 10-20% down to mitigate risk. But there are numerous hard money lenders willing to provide 80-90% loan-to-value ratios or higher. This allows little or no money down on investment property purchases.
It all comes down to the deal fundamentals and the lender’s evaluation of the profit potential. For experienced investors with a solid flip plan, zero down hard money loans are attainable.
Finding Hard Money Lenders Offering No Down Payment
Here are some places real estate investors can look to find hard money loans without a down payment requirement:
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Local hard money lenders – Connecting with lenders in your area can help as they will be familiar with local market conditions. Look for ads or search online directories.
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National lenders – Many hard money lenders now operate nationwide. This gives more options if local lenders have stringent down payment requirements.
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Real estate investor networks – Connect with other investors to get referrals on lenders they have successfully worked with.
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Real estate agent recommendations – Experienced agents often have good contacts for hard money lending sources.
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Online marketplaces – Platforms like LendingHome and Lenda link borrowers with vetted hard money lender options.
Once you find potential no down payment lenders, vet them thoroughly. Check customer reviews and Better Business Bureau ratings. Verify proper licensing. Read all loan terms carefully before committing.
Tips For Securing A 0% Down Hard Money Loan
While possible, not every real estate investor will qualify for a no down payment hard money loan. Here are some tips to improve your chances:
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Highlight ARV – Emphasize the after repair value and projected profit. This is what lenders care about most.
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Bring experience – First-time flippers often need to put down 10-20%. Multiple successful flips can help secure 0% down.
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Have funds for soft costs – Even with 0% down, you may need to cover closing, fees and rehab costs.
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Consider lender limits – Loan maximums may impact how much 0% down you can get based on purchase price.
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Improve your credit – A score of 600+ helps, even though credit is less important than with traditional loans.
What If The Lender Requires A Down Payment?
If you find a great hard money lending source but they ask for a down payment, don’t fret. You have options to cover it:
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Hard money lenders – One lender may provide the down payment loan secured by the property.
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Business credit cards – Maxing out cards can give quick access to down payment cash but beware of high interest rates.
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Business lines of credit – Tap funds from an existing BLOC if available. There is likely lower interest than credit cards.
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401K loan – You can borrow against your own retirement account and pay yourself back over 5 years.
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Private money – Asking family/friends for down payment help may provide better terms than other options.
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Home equity loan – If you have sufficient home equity, a HELOC can provide funds for investment property down payments.
The Pros And Cons Of 0% Down Hard Money Loans
Zero down financing for real estate investments offers huge advantages:
Pros
- Requires no upfront cash
- Allows quick acquisition of discounted properties
- Maximizes leverage potential
Cons
- Higher interest rates than traditional mortgages
- Short repayment terms of 6-12 months
- Flips must sell quickly or alternative financing is needed
While enticing, no down payment hard money loans are not suited for all situations. Make sure you fully assess risks and have plans to refinance or sell before loan maturity.
The Bottom Line
Hard money loans with no down payment offer real estate investors fast access to capital to fund deals. For experienced flippers, 0% down financing is attainable if the deal fundamentals make sense.
Vet any lender thoroughly, understand the risks, and have an exit strategy. Used strategically, hard money loans can be a key tool for your real estate investing success.
Can You Refinance a Business Loan With a Hard Money Loan?
Possibly but it will depend on the situation. Hard money loans typically require property as collateral. If you have commercial real estate with equity available, you may be able to use that to refinance a different type of loan. Depending on the loan type, you may wind up with a more expensive loan. But it may be possible to save money because some unsecured business loans carry very high costs.
How to Get 100% Financing With a Hard Money Loan
Not all hard money lenders offer the same types of loans to everyone. Hard money loans are a powerful tool for securing 100% financing, but not all borrowers will qualify. Here are a few ways to help ensure you get no down payment financing on your project.
- Make sure your deal is less than 70% ARV. Your ARV, or after repair value, should be less than 70%. That includes the property purchase price, rehab and loan costs.
- Maintain a solid credit score. While a good credit score is helpful to get a traditional loan, it’s also a good idea to have one for a hard money loan. You can still get a hard money loan with fair or poor credit, but you might not get 100% financing.
- Gain experience. Many hard money lenders won’t give money to borrowers if it’s their first time flipping a house. Having the experience of house-flipping can be in your favor.
- Be flexible in coverage. Some hard money lenders will cover the purchase price, but not other expenses (like repair costs, for example). You might have to cover some of the costs out of pocket (maybe business or marketing costs). With that being said, 100% financing might be different, depending on the lender.
- Consider the limit. Don’t be surprised if a hard money lender has a maximum loan amount you can get. If your property is worth more than the limit, you might be able to get the max loan amount, but not have it cover all your necessary costs.
Top 5 Hard Money, Fix-and-Flip Loans With No Money Down for New Investors CREDIT S2•E95
FAQ
What type of loan does not require a down payment?
What is the minimum credit score for a hard money loan?
Can you get a hard money loan with no collateral?
What happens if you default on a hard money loan?
What is a no money down hard money lender?
No money down lenders are few and far between as the risk for these lenders increases exponentially — they’re putting up 100% of the funds for your property. With no money down loans, expect even higher interest rates and a bit more thorough search into your income and credit history. So how do you find the elusive no money down hard money lender?
Do all hard money lenders require a down payment?
Not all hard money lenders require a down payment, but some do. Most often, house flippers and other real estate investors need a 20-30% down payment to mortgage a property with hard money financing. There are some situations when borrowers can finance the entire cost of a property with a hard money loan.
Where can I get a no money down hard money loan?
One of the more popular no money down hard money lenders, Do Hard Money is great for both newbies to the real estate game or seasoned investors. They offer a variety of loans with 100% financing on fix and flip loans, bad credit hard money loans, and refinance loans.
What is a hard money loan?
Put simply, a hard money loan is a short-term loan, typically 12 months or less, where the loan amount is based on the value of the property and the property being used as collateral. Hard money lenders are less concerned with the borrower’s credit or any past foreclosures or short sales.