How'd this guy get a commercial loan without paying down payment?
I'm interest in finding a 6+unit property but the hurdle is getting the 20%-30% down payment required for these commercial loans despite a property having good rental income.
Was checking out this BiggerPocket's video:
Guy mentioned he didn't have to pay a down payment, only closing costs because the appraisal versus his accepted offer amount left $30k equity in the property.
Typically these commercial and hard money loans want 20% down. Any insight?
I've heard of seller's contingency on FHA for closing costs, but not for the down payment. Is this a commercial financing thing?
I've used hard money loans where I didn't hardly have to come up with a down payment so I could see that being possible, however all the commercial loans I've used typically want a down payment. There was one flip I bought and the bank financed 100% of the purchase and I didn't even realize it, but then my down payment essentially was me putting money into the flip rehab
if you are trying to get started without much down payment money, try to find Partners or private lenders. Otherwise, just use hard money lenders that can do 95% of cost or 100% of cost. They are usually expensive to use and will take up almost half your profit, but it allows you to get in the game. That is how I got started.
LTVs on purchase are almost always based on the sales price, not the appraised value. Which means that it's possible to buy a property with "no money down" meaning none of YOUR money down, but somebody is going to need to come up with that 20-30% down payment.
There are ways to refinance out of your purchase loan and recapture a good % of your initial investment not long after buying, but again somebody is always going to need to come up with that difference on the purchase. That somebody could be you, a private equity lender, or a hard money lender.
@Scott E. 's response makes a lot of sense to the video you posted @Cee Williams - seems like the person in the video had his property appraise for more than what he had it under contract for and the bank accepted the difference as downpayment.
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Quote from @Allan Smith:
I've used hard money loans where I didn't hardly have to come up with a down payment so I could see that being possible, however all the commercial loans I've used typically want a down payment. There was one flip I bought and the bank financed 100% of the purchase and I didn't even realize it, but then my down payment essentially was me putting money into the flip rehab
if you are trying to get started without much down payment money, try to find Partners or private lenders. Otherwise, just use hard money lenders that can do 95% of cost or 100% of cost. They are usually expensive to use and will take up almost half your profit, but it allows you to get in the game. That is how I got started.
Thanks for the insight. Definitely a challenge finding partners. Any referrals for these 95%-100% finance lenders?
On Fix and Flips it is possible to get 100% of the purchase but the loan can't exceed 70% of the ARV - which is why it's hard to get that full 100% in most cases.
On a straight purchase, there is always a down payment. If your credit is very good then you'll get funded for 80% of the purchase. It is possible to work out a deal with a gap funder who will loan you the down payment and closing costs in exchange for equity in the house.
Most times though you'll need 20% - 25% of the purchase if not a fix and flip.
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There are all kinds of ways to get creative with this, We made a great YouTube and put it on the Gelt Financial channel. But some of them include blanket mortgages, Seller seconds, and buying properties under market value.
as well as JV equity deals
I bring the property and scope of work to my local bank, portfolio loan. Its appraised subject-to repairs and AS-IS. My bank will fund 75% of the AS-IS appraisal for purchase plus a line of credit up to 75% of the ARV. If the property is under contract for 75k and appraised as-is for 100k, I close for $0. If the ARV is 200k, I get a LOC for 75k. Its not that smooth every time, but it does happen. You can also add into the contract that the seller pays X for closing costs to potentially bring nothing or get a check at closing.