zero down??

Question

i want to get into rehabbing (or fliping whatever you wish to call it).

i hear it can be done with zero down?

true or false ... if true please do tell!

Steve Fierros · Answer

I also totally agree, a good hard money lender, I believe, is vital to making rehabs work if you don't have the straight up cash, or even if you do, it makes sense to leverage your money, just like everything else though, shop around, make sure you're able to find the right hard money lender for your needs
SG

Bryan Casteel · Answer

dcn and cnew:

True no-money-down deals are harder to get on junker properties (versus nice properties that don't need any work), but it can be done.  As all cash said, if the seller's problem is money, then usually only cash will solve it.  It is still possible to work out creative purchases, but then there is still the cost of holding the property and fixing the property.

Just remember, though, that it isn't as important to use no money as it is to use none of YOUR money (especially if you need your money to eat).  I would argue that if you have a private investor that funds the purchase and fixup costs for a part of the profit - that is a no-money-down deal for you (none of your own money).

N/A N/A · Answer

If you have high comps in the area would'nt a bank be more likely to give you the loan?

John Worley · Answer

Rehab loans can now be done both conventional and hard money.

Hard money rehab loans are familar with many of us. Typically you can get these at around 65% to 70% LTV (based on the subject to appraised value) plus 5 or 6 points loan origination and the usual UW, processing, title fees, etc. Most of the major HML lenders will allow you to roll your closing costs into the loan as long as you are under the LTV requirment.

Conventional rehab loans are still fairly new and there are only a few lenders that are offering them. Basically you can break this option down into two segments:

- Houses that need less than $50K in rehab
     &
- House that need more than $50K in rehab or are tear downs/new construction.

Both programs are pretty similar.

The rehab loan for $50K and under is for 90% LTV (based on the total project cost) which means a 10% downpayment plus you pay the closing costs at the table, just like any other conventional purchase loan. The rehab money is put into escrow and can be drawn out as the work is completed. The loan is structured as a conventional Fixed rate and ARM with terms of 10 to 30 years. This is also a Full Doc only program.

The rehab/construction loan for $50K and over is also for 90% LTV (however, this is based on the subject to appraised value) and the lender will allow everything including closing costs to be rolled into the loan, as long as you are under the 90% LTV. This program can be done Full Doc and Stated Income. Other than these things, it is the same as the first program.

If you need some help, I have all of these programs available.

John Cashin · Answer

To the person asking the question, yes it can be done, but it definitely requires both assets/liquid & good credit.  also it depends on the house you are buying... i just bought a house with 5% down, but we are getting a loan for the full $380k after all is said and done.  However, had I not put the 5% down in cash, the next highest bidder would have taken the house with his higher cash offer, no contest.

you gotta take other people bidding into account otherwise with your terms (like zero down) you may not get the investment.  so do you pass up the good investment so you can do a zero down deal?  or do you adjust within your means to allow you to make the investment and ultimately make money off of it?

Bryan Casteel · Answer

Robert,

That sounds a little too good to be true.  I would guess that there is something that you are missing in this equation.  Plus, if you only have a 10% spread in the deal after purchase plus fixup, you are getting into risky territory.  You need to have a much larger spread when you are all done with the project.  I have now had two properties that lost 10% in value over night as the market in that area of town was going through a transition to a buyer's market.  My $210K ARV turned into a $185K sales price (OUCH).  If you don't have enough spread in your deal to absorb that, you are going to be hurting when you sell.

N/A N/A · Answer

I had a Realtor in Tennessee tell me they have a program where you can buy a property in bad condition and get a big from a contractor to fix it up.  They have a bank that will lend 90% of the final value.  So if the final value is 10% more than the purchase price + the contractor bid all you have to pay is a couple thousand in closing costs. They pay off the contract on the house at closing and then give draws to the contractor until its finished.  Once its done it supposedly turns into a 5 yr ARM at 6% Interest Only without an additional closing.

Anyone ever heard of a program like this before? Its basically 100% financing.

I am thinking about trying one, and if it works and described I will let you all know.  Sounds like it could be pretty cool.

Ben Carmona · Answer

Prohabber is right.

HML are the way to go for those with lower credit and not a lot of funds.

I have seen deals that have been structured that if there is room in the 70%, the lender will cover points, monthly payments, fix up money, and purchase.

Most hml will put the rehab funds into an escrow account.  Those funds are released for work that is completed.  So there will either need to be some money out of pocket upfront for supplies or a contractor that is flexible.  So if you had $15k that needed for the work, 3 draws up $5k could be set up.  Once the work for the first phase is done the lender would send a wire for $5k after inspecting.  Then on to the next phase.

Only a couple lenders wills cover the payments.

Bryan Casteel · Answer

Amsha,

A traditional bank is going to want to see that you have some "skin in the game".  They will want to know more about the purchase price and many times will will want to make sure that you are putting some money into the deal.  Of course there are exceptions with some of the amazing products that are available for 100% (or more) financing.

For investing purposes, hard money lenders are less interested in your own situation and money as they are the overall deal.  They will look at the purchase in terms of how good the deal is and lend you money based on their own criteria (e.g. they will give you 70% of the after-repaired-value regardless of purchase price and/or fixup costs).  These loans are great for getting into investments but they are expensive loans.  Of course if the deal is good enough, the expense of these loans is not a big problem and you can make money using them.

Chris New · Answer

hey dcn,
I feel like I am in the same boat as you. I am a newbie at this, havent bought anything yet. I would like to find some 0 down financing as well, but the best I have come up with so far is 10% down. (local bank). 
I am also thinking as you, buy a rehab CHEAP as posssible and fix it and rent it to get some cash flow. But the thing about rentals is you need some buffer money, obviously to make the payment until its rented, and make repairs too. I have heard about this 80/20 loan, trying to find out more about this, but not much luck so far.
I have a friend who has been doing this for a while now, I have talked with him and picked his brain, but hard to get a hold of him everytime I have a question. One thing he did tell me is he does use a real estate attorney, and that it would be risky to go into a deal without one. He has his financing worked out at the local bank, but has been doing this for a while and has a good repore with them.
I guess at this point I will have to use my own money to get financing, or equity out of my own home... 
I dont know if this will help you or not, but just some thoughts from another newbie. If any veterens out there want to lend some suggestions, it would be greatly appriciated.
Thanks