Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
There’s a few of rehab/fix and flip lenders out there offering 100% financing, no money down. This seems too good to be true. Has anyone here had an experience with one of these lenders that promises 100% on rehabs? I’ve yet to see one that’s real. Please share your experiences with any of these lenders.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
14y
It doesn't sound so much like a scam to me as marketing gimmick to get business. I would fund a deal 100% if it was good enough. But "good enough" would be a mighty tough standard to meet.
Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
14y
Back to the main point Terry, right??!! ha ha. Exactly. We did get off track.
I think that no one on BiggerPockets.com who saw this thread has someone they can recommend - based on the commentary. Looks like it's hard to find 100% financing for rehabs.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
14y
Is 100% rehab funding a scam? My answer is no. There are several programs out there that can offer such terms.
Keep in mind, it does not have to be just one lender. You can find a traditional HML and combne that with a secondary lender (also called gap funding) for the remaining balance you need as the borrower. This comes out to be 100% funding.
Of course the gap funder is in a much more "risky" position and thus, will charge steper rates as he/she should.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
14y
Hard to keep all these straight....
Loans are classified by the collateral taken, not the entity to which they are made. Non-owner occupied loans are still residential 1-4 if that is what the collateral is. Consumer protection applies to owner occupied, RESPA applies to all residential properties as well as disclosures of the APR. Parts of RESPA apply to any real estate closing.
Up front fees, appraisal and credit reports should be expected, but not always charged. A good broker or lender won't really know a commercial loan will be funded up front there can be alot of work involved and getting at least the costs covered I don't think is wrong, I certainly charged for my time.
Appraisal fees should be paid by the lender not a borrower as the client of the appraiser is the lender, not the borrower. Otherwise it puts the appraiser in a bad situation of representation. Same goes for ordering the credit reports.
I'd bet real cash that there is somone out there who has received money from someone and has called themselves a HML or Commercial Broker who has made a loan on a SFR to some LLC and thinks that they are a commercial lender. Wait til something blows up and they get in court on just about any issue and learn what they thought they were was not at all what they were....LOL
Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
12y
I know this thread is a bit old, but I wanted to ask - despite your "lol" at the end of your last comment, Bill! -
Is this in need of some kind of professional designation or compliance with some kind of law or regulation? I was under the impression from working with a local LLC that uses private money loans from individuals to fund rehabbing projects who was recommended that nothing special was necessary, and the attorney who ran this through is fairly experienced, and though he said there are "a lot of moving parts" in this deal, he didn't red flag anything.
So Curt (rehabber) owns a house outright. He has a contract for deed tenant in place who paid first, last, security, and option fee for a three or four year term. Curt found a deal he wanted to purchase for a rehab, and needing cash, I lent him $100k for 8% annually and then he did his thing with that house he wanted. As collateral, I got a personal guarantee (yes, from him as an individual) and he mortgaged (is it "he" mortgaged, or "I" mortgaged, well you get the picture...) the property he owned outright (the one that has the contract for deed tenant). In other words, my LLC now sits in the only mortgage position on a house that is worth at least $150,000 on the market. There is one more little layer: the house is owned by Curt's land trust, and a person I have not mentioned, Marion, is the trustee (I think that's the term), so in a technical sense, I loaned to whatchamacallit land trust.
Yep, a lot of moving parts. You are welcome to comment on whether you think this is an advisable deal, but also, was I supposed to have some special designation or follow RESPA or prepare to be examined by the State or some such thing?? In regard to the first question, I felt it was a good move because it's a decent percentage for four years, he is recommended by a guy I know well, he does a lot of business and has an A with the BBB, I'm in the first mortgage position with no second mortgage holder, the house i loaned on is sound and the tenant is paying Curt monthly, it is worth a good $150,000, and I have a personal guarantee from Curt. Seems like a win/win/win. I was willing to accept the fact that the land trust has a title insurance policy in place in lieu of a lender's title policy. I am an additional insured on the homeowner's policy. Incidentally, a month later the insurance company providing homeowner's insurance dinged us for having the tenant have the policy in his name, claiming that the actual owner was not the tenant, but in fact, the land trust. So, a new policy is being put in place as I write. Should turn out fine.
Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
12y
@Jason Merchey it depends on where the property is located. In some states, if you are originating a loan on a residential property, it doesn't matter if it's your own money, you still have to be licensed under the SAFE Act. Each State has it's own interpretation. The wisest thing to do is to call the Division of real estate at your State level and/or the Division of Mortgage lending. Pose the question to them, tell them it's non-owner occupied, residential property for rental or resale. Ask them if you need a mortgage license to originate residential mortgage loans on this type of property. They will give you the answer or direct you to someone at the State level that can. If you're lending your money through a "company" in that State, they should be a "broker" or should be licensed if your State deems it to be so.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
Jason, I know some don't care for my sense of humor. Oh well....
From the federal side and surely by any state, an attorney can originate a loan, following the requirements of an originator.
The only issue I saw was with the trust being in title and saying you loaned to whomever. Your deed of trust needs to be made by the trustee, or you didn't properly perfect the security interest, I'd bet on any attorney getting that right unless they were really new.
Back to the other issue, any lender advertising a loan product and never closes that product can get nailed. We had a broker here who did that, collecting fees and not closing deals. I called one of my FBI borrowers and they stung her, she left town and went back to Florida and last I heard she was wanted for fraud. :)
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
12y
Jason, what you have done is fine and despite what others may say, all the new laws regarding lending, have more to do with owner occupant loans and not non owner occupied. In your case, you made an investment into a trust deed secured by a residential property owned by an entity (the trust) whom rents the property out to a tenant, this a NOO loan. I would suggest that next time you consult your attorney before making such loans to insure all your ducks are in a row, the hazard insurance policy for example should have been done correctly to begin with. You should make sure you are within the usury limits of the state you are lending in (in this case, you are at 8% and fine for SC.
What you have done essentially is become a private mortgage lender. Just make sure you continue to do so with proper docs and to non owner occupied borrowers.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
12y
@Jason Merchey For more details, check out title 37, chapter 22 of the SC State law: http://www.scstatehouse.gov/code/t37c022.php (emphasis added):
(30) "Mortgage loan" means a loan made to a natural person primarily for personal, family, or household use, primarily secured by a mortgage, deed of trust, or other security interest on residential real property or security interest arising under an installment sales contract or equivalent security interest against the borrower's dwelling and: (i) located in South Carolina, (ii) negotiated, offered, or otherwise transacted within this State, in whole or in part, or (iii) made or extended within this State.
By definition, you didn't "make a mortgage loan" in the context of the legislation. Also note that your attorney is an "exempt person" in the context of the legislation. Your deal just doesn't fit, by definition or scope, the intent of the legislation (which is regulating people in the business of residential mortgage lending.) BTW, these SC laws are reasonably similar to ours just to your north in NC.
Lender · Frederick, MD · Member since 2014 · 6 posts · 1 vote
10y
I have been in lending for a very long time. I have been brokering purchase rehab loans as majority of my business for last few years. I will say that, I personally know of 1 institutional lender that does 100% purchase/ rehab loans to qualify for that program you have to more than walk on water to qualify but it real. I have a program that is up to 90% of rehab and 100% of rehab that is much easier to qualify for with out any junk fees. I hope this info has helped with your question
Lender · Denver, CO · Member since 2015 · 275 posts · 35 votes
10y
No its not a scam. I work with many lenders that do it. The tricky part is the ARV. They will only lend a percentage of the lessor of the two. Some deals you can get reimbursed for 100% some that exceeds the ARV allowance and it may be cut short.
Lender · Granite Bay, CA · Member since 2014 · 456 posts · 454 votes
9y
100% financing is common when you know what you are doing and build connections w private lenders. I I have loaned 100% many times to flippers I know. I have also partnered where I put up the money and get a guaranteed rate of return and a portion of the profit. It's all who you know!
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
8y
Saw someone voted for my post and realized it was 5 years old.
As an update, 100% hard money loans are real. I've been using them for years. I think when I posted this 5 years ago, I was at about 15 or so houses. Now I'm at 66. I would have never been able to grow to this number without using hard money and more specifically without 100% financing.
There have been times over the last 3 years where I've had 6 or 7 loans outstanding. If I was putting down 10 or 20 percent, that would have been 70k to 140k out of pocket. I wouldn't have been able to do that and still have enough money in the bank to qualify for the refi's.
Hard money has its place. Its great for stretching your capital. It just requires you to find really good deals.
Most of them are claiming to offer 100% financing. As soon as they get an upfront fee from the client, they can fund whatever they want. 65%, 75%, 90%, whatever. As long as they do one of the 100% financing deal in a year, they can still claim they offer 100% financing...
This is usually how the scam works. Are there are companies that anyone knows about that claims they offer 100% financing but are really a scam?
Yes, we call them deposit stealers. Reputable lenders go from 70% of all in costs to a maximum of 85% of ARV, after renovation value.
100% financing sounds too good to be true and it is. At 100% financing, these so called lenders can buy themselves. As some others have said, they may lend 100% of cost if the ARV exceeds 85% threshold.