No Income - 100% LTV loans - Are they a good idea?

14 Replies

Hello everyone,

My name is Garret Anthony and I have a simple question I want to ask the community.


Would using a no income zero down loan be a good idea?

Thinking about buying a $2,000,000 property with zero down that cash flows 14K a month. It is a fourplex, the IO payment would be somewhere in the neighborhood of 9K a month with taxes and insurance and a vacancy factor I'm looking at 2K a month in rent.

What should I look out for?

Who is offering this type of loan product and why.  If it sounds too good to be true it probably is, I'd be hyper paranoid that this is a scam, or has some extremely unfavorable terms.  I'd probably stay away if it were me.

@Garret Anthony i assume the "cash flow" is gross rents at that amount. What is your actual NOI and what is your P&I payment. You should have at least a 1.25 Debt Service Coverage Ratio. The lower your ratio of NET income to payments the riskier it is.

I agree it is probably a scam if they say they would accept a low DSCR.

Originally posted by @Aaron K. :

Who is offering this type of loan product and why.  If it sounds too good to be true it probably is, I'd be hyper paranoid that this is a scam, or has some extremely unfavorable terms.  I'd probably stay away if it were me.

This product is being offered by a NON QM product. It is essentially a debt service coverage loan. As long as PITI is covered by the rents and it's greater than one unit it quality's.
This would be my first investment, I feel like this would be a great first time deal loan.

Originally posted by @Zach Quick :

@Garret Anthony can you move into it and rent it out the other 3? That would give you the best financing options as an owner occupant.

I cannot move into it, I plan to rent where I live. Yea! I could you an FHA owner occupied but I am looking to buy out of state and I currently live and work in California.
I have about 50k liquid to invest and I am looking to use this No Occupancy No Income loan to help me acquire undervalued cash flow assets. What type of investing do you do?

Originally posted by @Frank Wong :

Makes no sense for a lender to lend this. Smells Fishy.  How did 100% finance NO Income work out the last time?

It's essentially a DSCR loan. It's based off cash flow. What type of real estate do you do?

Originally posted by @Ned Carey :

@Garret Anthony i assume the "cash flow" is gross rents at that amount. What is your actual NOI and what is your P&I payment. You should have at least a 1.25 Debt Service Coverage Ratio. The lower your ratio of NET income to payments the riskier it is.

I agree it is probably a scam if they say they would accept a low DSCR.

How could this be a scam if the lending terms are 5.875% on a 5/1 Arm interest only. They remove the LTV restriction for properties greater than 1 unit. Sorry if this question is redundant, I am new to the industry.

@Garret Anthony , can you share where you are getting the 100% LTV 5/1 ARM DSCR loan? Are there any payments upfront (environmental study fees or something)? what are if any pre-payment penalties?

Thank you!

Originally posted by @Garret Anthony :

How could this be a scam if the lending terms are 5.875% on a 5/1 Arm interest only. They remove the LTV restriction for properties greater than 1 unit. Sorry if this question is redundant, I am new to the industry.

@Garrett Anthony - It seems scamy, as I've never run run across a true lender that offers such a product. Sure, there are some people that will advertise via various methods, but they want upfront fees and will then disappear with your money and don't follow through on lending you the money. If you want to post who it is, what sort of company and funding it is (a bank, insurance company, CMBS, bridge, etc), we could probably give better advice. If it isn't a bank, I would highly suggest that you run if they ask for upfront fees, and do a fair bit of DD on them (such as googling their name and scam, or looking for bad reviews).

Another way to look at it, say from a banks point of view, is what is the lenders security if they are lending 100% of the purchase price?  As you don't have skin in the game (such as a normal 20% downpayment) that would help them recoup their costs if they have to foreclose (such as legal fees, holding costs, etc).  You could say that you are bringing in a great deal and getting it way undermarket, but then, they don't necessarily want to be holding property (as they generally aren't in the business of being landlords) and would underwrite it differently than an investor.

Now, if it is seller financing, that would be a completely different story, and could very well be a good deal, depending on the exact numbers.  But if you want help with that, you will need to post specifics, like some of the other posters have mentioned (Gross rents, actual expenses, actual debt serivce).  As if your net cash flow (after all expenses and debt service) is 14k/mth (but then you mention 2k/mth, so I'm uncertain if you are confusing terms, which is why I asked for specifics), and you get 100% seller financing, that could be a great deal if the property isn't overvalued.

@Garret Anthony you asked
How could this be a scam if the lending terms are 5.875% on a 5/1 Arm interest only.

Are you are asking because that seems like a high rate. So why would a scammer charge a high rate?

First 5.875% is cheap money historically. More importantly they are offering 100% financing. This is very risky and extremely rare for the lender.  Why would a lender do this?  A 6% rate is not near high enough to cover that risk.

How does this play out if it is a scam? Sometimes it is simply to get you to commit to the lender and then they hit you with lesser terms later. Sometimes it is getting fees up front when there is never going to be a loan.

I have no idea if this is a scam but it sounds to good to be true as you have presented it. Of course there can be lots of other details we don't know about that can paint a different picture.