Are you seeking 100% financing for a real estate investment purchase and finding that it’s not easy to find a lender for your deal? In this guide, we’ll explain how 100% financing may be possible, the maximum loan-to-value, and how to find private hard money lenders that offer the highest leverage.
This guide is focused on Purchase Bridge Loans. If you’re a house flipper, check out our other guide that covers 100% Financing for Residential Fix & Flip Projects.
Hardly any private lending companies in the United States will consider 100% financing because it is extremely risky. If you don’t put any money into a deal, you have nothing to lose, and therefore, you may be more inclined to walk away from a property if things don’t work out as planned. This is the explanation we hear from most of the lenders in our network.
If you think the lender can just take back the property and make a profit, that is not reality. Foreclosure is a lender’s worst nightmare. Professional private lending companies are in business to lend money, not to own and manage properties.
Before we continue, we have to clarify that private mortgage lending is only for investment real estate. It’s not for buying a home that you’re planning to live in. There is one exception in California, and we’ll write another article to cover that.
Another item to clarify is the type of lender. The information in this guide is focused on professional private lending companies, also known as hard money lenders or bridge lenders. We are not referring to private individual investors who lend out their own retirement funds.
100% Financing For Purchase Bridge Loans
The only way to get 100% financing for the purchase of an investment property which will not be significantly improved during the loan term, is with cross collateralization. This means you need to have another investment property with a sufficient amount of equity to use instead of cash.
If you do have another investment property to pledge as collateral, the lender would have a 1st position on the property being purchased, plus a 1st or 2nd mortgage on the property you already own (the “crossed” property).
If the crossed property is owned free-and-clear, meaning it doesn’t have an existing mortgage, you can use up to 70% of that property’s value for the purchase transaction.
Not all private lenders offer this, and it may take a bit longer to close because the lender now has to do their due diligence on a second property.
Not many lenders will consider a 2nd position mortgage, but the ones that do will likely have higher pricing. The interest rates for most 1st position private mortgages range from 7% to 12%, with the average being around 9% nationally. For a 2nd mortgage, the interest rates typically range from 10% to 15%.
If the crossed property will have a new 1st mortgage instead of a 2nd mortgage, the pricing would likely be the same as if you brought cash to the closing.
If you feel that this method of crossing another property being called “100% financing” is a bit deceiving, you’re not alone. However, this is how some lenders advertise that they offer 100% financing for a purchase bridge loan, and what they really mean is you can buy a property without a cash down payment.
Seller Financing Option for Higher Leverage
One other way to get higher leverage in purchase bridge loans is with a seller carry-back. This means the seller would provide a 2nd mortgage to fill the gap between the private lender’s maximum LTV and the purchase price.
While some private lenders are OK with this, they will not consider it when the borrower is not putting any of their own cash into the deal, so it’s not possible to get 100% financing with this scenario.
If a lender is willing to fund up to 70% of a purchase, they may be OK with you putting 10% down and the seller can finance the remaining 20% with a 2nd position mortgage.
For a residential property purchase, it will be nearly impossible to find a private lender willing to fund a 2nd mortgage for a purchase. This is commonly known as Gap Funding. We’ve known some companies that offered this in the past, but they went out of business or had to change their model because it resulted in too many foreclosures.
In commercial real estate financing, there are some private lenders that offer 2nd mortgages for a purchase. They call it “mezzanine financing” or “preferred equity.”
The minimum loan amount is typically one million dollars, and the property investor will need to contribute 10% to 15% percent of the purchase price in cash.
Buying Below Market Value
What if you’re getting a great deal off-market and buying way below the real value?
Most private lenders will not take this into consideration. In private mortgage lending, the purchase price is the value.
If you try to argue this with a private lender, their response will likely be that if they can fund 100% of the purchase price, they can just buy the property for themselves and be a real estate investor instead of a lender.
We see a lot of real estate investors using the perceived value amount when they state the loan-to-value to a lender. But if you’re buying a property and not adding any value to it during the loan term, a private lender will primarily focus on the purchase price, and many use the acronym LTP which is short for “loan-to-purchase price.”
If Not 100%, What’s the Maximum Loan-to-Purchase Price?
The max LTV for most short-term purchase bridge loans is 70%, and a small number of lenders will go up to 75%. If you’re buying vacant land, the maximum is 50% loan-to-value. Anything higher than that just doesn’t make sense for a private lender.
So to purchase an improved property, you’ll need a down payment of at least 30%, and for vacant land, the minimum down payment is 50%. If a lender is more conservative based on the property type, location or other factors, you’ll need a bigger down payment.
Some private lending companies offer long-term financing (5, 10 or 30 years) for residential rental properties. The max LTP for these loans can go up to 80% if you have good credit and the property is located in a primary market.
How to Find Lenders
You can find direct private/hard money lenders right here on our website, and we have a filter you can use to find the highest leverage.
- Start at the Find a Lender page
- Select one of these 4 Loan Types: Private Money, Hard Money, Commercial Bridge or Residential Bridge
(Private Money & Hard Money will have similar results, and all lenders listed offer purchase bridge loans)
- Type in a state or major metro area, and click SEARCH
- Browse the list or click REFINE RESULTS in the Filters section
- Locate the field for LTP (Loan-to-Purchase)
- Type 100, and press Enter
- If you don’t see any results, type 95, 90, 85, and keep going down in increments of 5
- View each lender’s profile to learn about their guidelines, background and more
- Click the green CONTACT button and reach out to the lender directly