Hard money loans based on ARV with smaller “down payment”

24 Replies

Hi BP!

I've successfully flipped a couple houses partnering with my mom, but she is now retired finds herself too risk-adverse to use a HELOC as we did in the past, and truthfully she is quite content with her retirement financial situation.

Which leads me to now. I am at the early stages of my solo investing career, I have $10k for down payment, and have been preapproved for about $200k FHA (3,5% down) or $155k Conventional (5%) down.

I would really love to either flip to gain a bit more capital or use the BRRRR method, depending on the numbers, but I think my best chances in this market(Twin Cities, MN metro) will be to have a cash offer or hard money, as it seems the value add here comes from property distress, which isn't exactly FHA/conventional friendly.

As an example, are there hard money lenders in Minnesota that would lend $170k for purchase and rehab based on an ARV of $270k, if I only have $10k cash?

How does my cash come into play? Is there a traditional “money down” situation with hard money?

Thank you so much for any input!


@Jesse Lynch & @Chance Stein from my expierence most hard money lenders do want at least 10% of the purcahse price down and will lend on 70-75% of ARV, which means it would be possible in the above senerio if the price were 100K or less, and the rehab was 70K. The house would need a future value of 226,667 if at 75% or 242,857 at 70% which would work in the above senerio. The issue I would see is that you would then be tapped out with no reserves to pay for holding costs while the house is vacent and being worked on, or for cost overruns or for repairs. I strongly encourage you to partner with someone so you have a saftey net of at least 10K but preferably all closing costs, and then 2X of all expected holding costs.

Feel free to reach out if you want to discuss it further.

@Tim Swierczek thank you for that insight! I do think you’re right about the partnering up for the extra money, and especially reserves. Would it be possible to buy a house with a conventional loan, and just get hard money for the renovation once the house was under contract/after purchase?

I am also pursuing a flip using a 203k loan, but that is certainly not without its own restrictions and headaches. Haha.

@Jesse Lynch you’d need money to rehab up front anyways which means you need a partner, personal loan, etc.

personally I think you should do nothing and wait til you have more cash.

@Jesse Lynch you won't be able to use a conventional loan and then get a hard moeny for just the rehab costs unless its a close friend or realtive.  The 203K could be an option but its not meant for flipping and you could burn your lender if you have the loan for less than 6 months.  I think you said you were doing it to raise capital in which case a flipp or savings are both better options.

@Cort Williams @Jesse Lynch just FYI, this Fred character messaged me on BP, asking if I wanted a loan, etc.

I told him my credit score was 900, which is impossible, to which he told me he “could work with that”. Long story short, I told him he’s a scam and then he blocked me.

There are many legitimate lenders on this site. If anyone messages you asking if you need or want a loan, that’s highly unlikely to be a legitimate lender. Good luck out there.

Originally posted by @Caleb Heimsoth :

@Cort Williams @Jesse Lynch just FYI, this Fred character messaged me on BP, asking if I wanted a loan, etc.

I told him my credit score was 900, which is impossible, to which he told me he “could work with that”. Long story short, I told him he’s a scam and then he blocked me.

There are many legitimate lenders on this site. If anyone messages you asking if you need or want a loan, that’s highly unlikely to be a legitimate lender. Good luck out there.

 I trust you reported it to the moderators?

If you are directly contacted by message by anyone on this site, unsolicited, to offer or sell you a product, please copy or forward the message and the name of the individual to one of the moderators by message and it will be handled. Vendors are allowed to sell in the marketplace but are not allowed to contact members unsolicited nor harvest email addresses from this site.

@Tim Swierczek When looking for a property that needs to be fixed up, is there a certain amount of rehab cost that will qualify it for a 203k loan?  I would love to use that type of loan if I find a property that needs repairing, but I am just not sure what exactly could disqualify a property from being funded by a 203k loan.  Thanks for any advice!

@Jesse Lynch I know there is at least one HML in the twin cities who will do loans for no money out of your pocket, 100% (purchase price + rehab) if the deal is good enough (<70% LTV) they say they can even roll in closing costs again if its a good enough deal...They have a requirement for a certain amount of reserves based on the size of the loan. So if you are able to find a great deal at the lower end of the MSP price range you may not need to tap your cash and still do a deal. They also host events most months. The company is called Pine Financial. I have not used them myself or have any connection to the company. But I have been to a few of their events. Good luck!

@Robert Kirkley The minium rehab for an FHA 203K is 5K with most lenders (I don't believe this is an FHA rule but I don't know of a lender who allows less), There are 2 types of FHA 203K loans Streamline vs Standard.

The Steamline allows for up to 35K in repairs but this number includes a cost overrun reserve of 10% and some closing costs, so the amount is usalble about is usually around $30,500.  The type of repairs also varies based on the loan type, here's some information pasted from (not my site) https://themortgagereports.com/18228/which-fha-203k-loan-home-construction-standard-streamline

This is the work which is allowed via the FHA 203k Limited:

  • Repair/replacement of roofs, gutters and downspouts
  • Repair/replacement/upgrade of existing HVAC systems
  • Repair/replacement/upgrade of plumbing and electrical systems
  • Repair/replacement of existing flooring
  • Minor remodeling which does not involve structural repairs
  • Exterior and interior painting
  • Weatherization of windows and doors, insulation, weather stripping.
  • Purchase and installation of appliances
  • Improvements for accessibility for persons with disabilities
  • Lead-based paint stabilization or abatement of lead-based paint hazards
  • Repair, replacement or the addition of exterior decks, patios, and porches
  • Basement remodeling which does not involve structural repairs
  • Basement waterproofing
  • Window and door replacement and exterior siding replacement
  • Well or septic system repair or replacement

And, this is the work allowed via the FHA 203k Standard:

  • Major rehabilitation, such as the relocation of a load-bearing wall
  • New construction, including room additions
  • Repair of structural damage
  • Repairs requiring detailed drawings or architectural exhibits
  • Landscaping or similar “site amenity” improvement
  • Any repair requiring a work schedule longer than three (3) months; or rehabilitation activities that require more than two (2) payments per specialized contractor
  • Improvements that require a plan reviewer
  • Improvements that result in work not starting within 30 days after loan closing; or cause the owner to be displaced from the property for more than 30 days during the time the rehabilitation work is being conducted

@Tim Swierczek Thank you so much for going into detail about the 203k loan. I had heard of the streamlined vs standard, but I didn’t know the difference. I have heard that trying to get a 203k Loan can be a process, is it difficult to find a property that will qualify for it, or is it just more red tape to get through?

Originally posted by @Jesse Lynch :

@Clem jFlotz

Very cool! I will look into that company!


I have come across lenders that offer 100% financing. Have not experienced the one mentioned but here is something to look out for, just in case it has the same issues I've seen elsewhere:

1. Rates tend to be 12-15% plus around 5 points (as opposed to say a more reasonable ~10% + 2 or 3 points).

2. The LLC on the loan is usually owned by the lender, not the borrower. I'm no lawyer but I'm told that this can mean that no foreclosure is necessary. While they of course want you, the borrower, to service the loan (Hey its a profitable interest rate!) if you do not make your payments then you will merely wake up one day without a property or any equity even in all that nice rehab work.

Once again I have not dealt with the lender mentioned, but as ever - Caveat Emptor!

I good way to crunch your numbers is to of course know the repair costs, the ARV and purchase upfront. Hard money lenders will lend up to 75% of the ARV. Expect to put down 10-20% of the purchase price and they will fund 100% of the repairs and pay the contractors via draws once each stage of the repairs when they are complete.

A little tip they don't tell you about in fix and flip school. Always try to wrap 6 months of the interest payments in the loan. This will require that you buy lower the 75% ARV which I do the advise anyway. Back out your numbers so that you don't have to make monthly payments on the loan while you rehab the property. It will save you a ton of headaches and stress.

@Jesse Lynch To echo what @Clem Foltz said Pine financial will lend 70% of ARV . So ARV at 270k they will lend 189k. They will do 100% rehab and purchase price if it meets the 70%. There are requirements for reserves and you have closing cost, points , property insurance, title insurance, ect at closing.

The ARV for a current one i am doing with them is 175k they are lending 122500. Purchase price is 59606 putting 65k in repair so not exactly 70% so that difference will come out of my pocket. At closing I'm bringing about 10k. So at ARV at about 270k I would expect you would need at least 20-25k and that's if the deal meets the 70%. @Sean Blomquist is the one you would want to reach out too.