How to get a Fix-and-Flip Private Money Mortgage Loan Up to 90% Loan to Cost
If you’re a savvy real estate investor, then you’re always looking for ways to maximize leverage and improve your revenues. Private money mortgage loans are a great place to start.
With the right private money mortgage loan - hard money mortgage loan financing strategy, you can cut down on red tape, speed up your time to close and, most importantly, reduce your down payment to as little as 10%. You also remove much of the hassle that traditional mortgage lending comes with.
Two, Low-Down Payment Ways to Buy Investment Properties
If you're looking for a way to fund your investment property efforts without lots of time, hassle or up-front cash, here are two ways to do it.
1. Buy the Property Under Market Value
If you’re looking to finance 90% of your property purchase using a hard money mortgage loan, then pricing your offers carefully is key.
Though buying under-market is a common approach for fix-and-flip investors (giving them wiggle room to purchase, renovate and eventually resell the property), it can also be effective for investors who intend to hold their properties for long-term income.
As a rule of thumb, we recommend calculating 75% of the “as-is” property value. A hard money mortgage loan or private money mortgage loan can cover up to 90% of that purchase, with you, the investor, paying the remaining 10%.
Let’s look at a property that has a $500,000 as-is value as an example:
[$500,000 X 0.75] = $375,000 (purchase price)
[$375,000 X 0.90] = $337,500 (maximum loan amount)
[$375,000 - $337,500] = $37,500 (total down payment from you)
In this example, you’d owe a $37,500 down payment, while your hard money mortgage loan would cover the remaining $337,500
2. Consider a Seller-Carried Second Mortgage
Another way to reduce the up-front costs of your investment purchase is to use a seller-carried second mortgage. Often referred to as a “seller carry back loan,” or “seller financing,” this simply means the property owner finances the purchase (or part of the purchase) rather than a bank, lender or financial institution.
Here’s how it works.
The seller agrees to loan you the money for all or a portion of the purchase price. As with a traditional loan, you pay them back, plus interest, over a set period of months or years.
If you already have 90% financing via a hard money mortgage loan or private money mortgage loan, a seller-carried second mortgage can be a great way to cover the remaining balance on your home purchase.
If the seller is willing to finance just 10% of the purchase price, this loan plus the existing private money loan equal 100% financing — meaning no down payment or up-front costs are required. Looking at our previous example, a seller-carried loan would cover the remaining $37,500, putting your down payment at zero.
Why Private Money Mortgage Loans Are Perfect for Real Estate Investors
The big benefit of using these hard money mortgage loan and private money mortgage loan approaches to investing — aside from the up-front savings they offer — is the ease, speed and convenience they come with.
Private money mortgage loans are asset-based, so there are fewer hoops to jump through and much less red tape and paperwork than a traditional mortgage loan requires. In these scenarios, the lender (be it a seller or a private money lender) are mostly focused on the collateral (the property) and less so on your income, credit and personal financial position.
Another major advantage is that most purchases using hard money mortgage loans don’t require an appraisal. As long as the loan is for under $1 million, you can use a Broker’s Price Opinion instead, which is faster and more affordable on the whole.
All in all, private money mortgage loans and hard money mortgage loans are ideal for any investment move, including:
- Fix-and-flip purchases
- Bridge financing
- Fix-to-rent situations
- Buy-to-rent investments
Ready to Get Started?
Are you considering hard money or private money loans to finance your next investment purchase?
At HomeLife Mortgage, we offer private money mortgage loan financing up to $5 million on single-family residential properties of 1-4 units. Loan terms range from 1 to 2 years and are not eligible on land or ground-up construction. Interest rates range from 8.5 to 9.5% and are based on property condition, loan-to-value ratio, investing experience and credit. Origination fees include 1.5 to 2% of the loan cost, plus a $795 underwriting fee and $750 document fee.
Want to learn more or get started on your financing? Get in touch with one of our loan officers today.
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About HomeLife Mortgage
For more than 25 years, HomeLife Mortgage has built a strong reputation in California and Florida as a leading mortgage broker, servicing the needs of borrowers who have been unable to obtain conventional financing. HomeLife Mortgage is at the forefront of non-bank lending offering the next generation of mortgages including Jumbo Non-Prime Loans, Real Estate Investor Loans, Bank Statement Loans, Non-Warrantable Condo Mortgages and Foreign National Mortgages.