Are you a real estate investor seeking 100% financing for a property fix & flip deal and finding that it’s not easy to find a hard money lender for your deal? In this guide, we’ll explain the requirements for getting 100% financing, the typical pricing, and how to find hard money lenders.
100% financing is only available for residential rehab projects where there is a clear exit strategy with the sale of the property in less than 9 months.
And by Residential, we are referring to single family homes, also known as SFR. Some hard money lenders may consider condos or 2-4 unit properties, but for 100% financing, it has to be a SFR. The reason is the single family home is the easiest property type to sell and the easiest to appraise, so long as it’s in an urban or suburban area.
No lender will consider 100% financing for rural homes, a ranch or any specialty property type.
And 100% financing is not for rental homes. If you’re planning to rehab and then hold the property as a rental, 100% financing is only possible if the lender funding the purchase & rehab also offers long-term rental financing.
For lenders that are willing to fund the entire purchase price and the entire renovation budget, they can justify the risk as long as the loan amount is not higher than 70% of the after-repair value, and some lenders will max out at 65% loan-to-after repair value.
In addition to the ARV, there are a few key requirements to qualify for 100% financing.
How to Qualify for 100% Financing to Flip Houses
Requirement #1 – Experience
The first requirement for 100% financing is experience. You’ll need to have completed at least 3 successful flips within the past two years. If you don’t have sufficient experience, you’ll need to have a down payment of 15% to 20% for the purchase.
If that’s not possible, the lender may consider your deal if you partner with another investor who has experience, and both of you would be guarantors of the loan.
How do you find a partner? There are many REI (real estate investment) clubs throughout the country where real estate investors meet to network and learn. Many REI Clubs are listed on Meetup.com. The more established clubs use their own website instead of Meetup.com, so a Google search for “REI club” plus the city or state should get some results.
Requirement #2 – Cash Reserves
The second requirement for 100% financing is cash reserves. If the project goes over budget, the lender will not give you additional money to make up the difference. Once the loan amount has been set, it can’t be changed, and you’ll need to cover any cost overruns out of pocket.
If you don’t have enough cash reserves and you don’t have any experience flipping houses, it will be impossible for you to get 100% financing.
The lender will ask you for bank statements showing you have a good amount of cash on hand just in case.
The other reason for showing you have cash on hand is you will most likely have to make monthly interest payments, but some lenders will set up an interest reserve to cover the monthly payments.
Requirement #3 – Light Rehab
The third requirement is the project scope. It has to be a light rehab project consisting of mainly cosmetic renovations such as kitchens, bathrooms, flooring, landscaping, etc.
If the project involves adding square footage or anything structural that requires city planning approvals, you likely won’t find a lender to fund 100% of the project.
The reason is there’s a good chance it could take longer than 9 months, and if a fix and flip loan takes longer than that, the profits may start to diminish and lenders don’t want to provide such high leverage for a longer term. The lender wants you to get in and get out as soon as possible.
Additionally, if there is a default and the lender ends up owning the property after foreclosure, they do not want to take over a big complicated renovation project.
Requirement #4 – Credit History
The fourth requirement for some hard money lenders is a decent credit history. Even though hard money loans are primarily based on the asset, lenders will hesitate to give you the maximum leverage if you have a poor credit history.
Some lenders don’t care much about the score, but they will do a credit check to see if you have a bankruptcy, foreclosure, or other major events. Others won’t even check credit, but they will do a background check.
If you do get approved for a hard money loan, a low credit score could mean higher pricing.
Typical Pricing for 100% Financing
The average pricing we see for 100% financing is 16%, including points, and you’ll have to pay for all the closing costs too. This could be structured in several different ways. Here are a few examples:
- 12% interest plus 4 points
- 11% interest plus 5 points
- 10% interest plus 4 points plus a a 2-point exit fee
The total could be higher than 16% or it could be lower. The lowest pricing we’ve heard of for 100% financing with fix & flip deals is 13%, structured as 10% interest and 3 points, plus closing costs.
Also, you will likely have to pay the points and closing cost upfront, at the close of the purchase. So even though it’s called 100% financing, you could end up contributing some cash to the deal.
For example, if the lender charges 3 points on a loan amount of $300,000, that’s $9,000, plus closing costs could be $1,000 to $2,000.
Calculate the Loan-to-ARV
Once you’ve gotten past the potential costs, the ARV is an important factor. Some lenders will advertise 100% financing with a maximum loan to after-repair value of 65%.
When you run the numbers, you may find that a 65% ARV won’t cut it, and you’ll have to end up contributing 5% to 10% of the total project costs.
Why Lenders Don’t Do 100% Financing
Hardly any hard money lenders offer 100% financing because it’s too risky.
From a lender’s perspective, if you don’t put any of your own cash into the deal, you may be more inclined to walk away from the project if it goes over budget or doesn’t work out for whatever reason.
If you think the lender can just take over the project if needed and make a profit, that is not reality. Foreclosure is a lender’s worst nightmare and typically ends up being a loss.
Professional hard money lenders are in business to lend, and they want you to succeed so that you can flip more properties using their money.
If Not 100%, What’s the Maximum Leverage?
If by now you feel discouraged to seek out 100% financing, you may be wondering how much most hard money lenders require you to contribute for a house flip.
There are a good number of lenders that will go up to 90% of the purchase price, and even more will max out at 80%.
So the down payment required by most hard money lenders ranges from 10% to 20%
Almost all hard money lenders will fund 100% of the renovation budget because they want to control the disbursement of the funds. So your cash contribution is mainly for the property purchase and closing costs.
And when you contribute a good amount of cash to the deal, the pricing will be much lower than the numbers mentioned earlier. We’ve seen fix & flip loan rates go as low as 7.5% plus 1 point (origination fee), but most are in the range of 9% to 10% interest plus 2 points.
Also, if you’re not seeking 100% financing, the loan term is typically 12 months, and you can request 18 months if it’s an extensive rehab project.
Hard Money Lenders that Fund 100%
There are a few hard money lenders on our platform that will consider financing 100% loan-to-purchase, but only for experienced rehabbers with sufficient cash reserves…