It’s normal for lenders to require at least 20% to 25% down if you’re interested in investing in a single family home. But while it’s common, there are ways to get around this.
We explore creative financing techniques that will help you circumvent these down payment requirements so you can start building your portfolio faster.
Landlord Loan Down Payment Requirements
Landlord loans offer a wide range of benefits for those looking to purchase investment properties.
They’re easier to qualify for, close fast, require little paperwork, and often offer flexible terms.
That being said, down payment requirements are often comparable to traditional loans.
A few examples include:
- Landlord Loans: Landlord Loans advertises up to 80% loan-to-value (LTV) for purchases, meaning you’d still need to cover a 20% down payment.
- Builders Trust Capital: Builders Trust Capital is another resource for landlord loans. They also offer up to 80% LTV for purchases.
- LNH Capital: LNH Capital doesn’t state its LTV for purchases outright. Rather, they advertise their 85% LTV on cash out refinancing. However, it’s likely that they only offer up to 80% LTV on purchases as well.
Landlord loans are more accessible than traditional loans. However, you likely won’t reduce your down payment requirements in the process. Consider other options listed below to get the best terms.
0 Down Hard Money Loan Down Payment Requirements
Not all hard money loans are going to help you avoid a down payment. There are many hard money loans that may only cover 80% to 90% of the costs. However, it is quite possible to get 100% financing.
There are several ways to get 100% financing using hard money loans for quick flips. Some strategies that will enable you to get a no-money-down hard money loan include:
- Negotiating a low purchase price.
- Having prior experience that helps you develop a relationship with a lender.
- Applying with a high FICO score.
There are a decent number of hard money lenders that are willing to offer 100% financing. One option is The Investor’s Edge. Previously, The Investor’s Edge explicitly advertises that they may offer 100% financing.
The only potential downside is that accessibility to funding will depend on where you’re located. If they can’t offer you a loan in your state, you’ll have to shop around for alternatives.
Another option is LendingOne. They offer up to 100% financing for rehab costs, and they won’t even charge you any interest on leftover funds. More than that, you can get financing in 44 states, which is a better deal than The Investor’s Edge.
The only caveat is that you can’t be an individual. You must have a business structure to get lending from them, be it an LLC or a corporation.
Commercial Property Loan Down Payment Requirements
Some commercial real estate loans could see you putting down at least 20% when you apply for funding. However, as with many loan options, that can vary depending on where you go for financing.
Small Business Administration (SBA) loans may be the first place to look. Namely, you’ll want to look at SBA 7(a) loans and SBA 504 loans if you want investment property loans with 10% down.
SBA 7(a) loans can be secured with as little as 10% down, although you might have to pay as much as 20%.
Meanwhile, SBA 504 loans can be secured with anywhere from 10% to 15% down, which is better than some alternative lending solutions you could turn to.
Keep in mind that SBA loans require a business to buy a building for itself. In other words, your business needs to physically occupy at least 51% of it. The rest can leased out.
If you’re looking for a creative way to secure funding with a low down payment, you could consider an FHA 203(k) loan. These can be used for mixed-use commercial properties, and you could get one for as low as 3.5% down.
100% Financing Options
HELOCs
A home equity line of credit (HELOC) can be one way to help you fund your investment property endeavors.
As the name suggests, you receive a line of credit using your home’s equity. It’s a quick and easy way to access funding, and you can use what you need, accessing the full amount once you pay back what you used.
With all that said, there are a few downsides to HELOC. A HELOC often comes with variable interest rates and numerous fees, for example. More than that, you’re putting your property at risk by offering it up as collateral, be it your personal property or an investment property.
A HELOC shouldn’t be your first choice if you’re looking for ways to finance your investment property goals. However, it is an option that you should be aware of.
Business Lines of Credit
Are you interested in what a HELOC could offer without wanting to get a property involved? Then you should pursue a business line of credit.
A business line of credit is a stellar option for investors who need increased cash flow and short-term funding.
Some business lines of credit are difficult to qualify for. But there are others designed for investors with less established credit history and high business credit scores.
Bank business lines of credit have low interest rates, so go for those. Alternative lender LOCs usually have high interest rates, notable fees, and the risk of overspending and accidentally getting yourself into debt you’re unable to properly manage.
401(k) Loans
If you’re having trouble accessing traditional loan options, you could get a 401(k) loan.
401(k) loans allow you to borrow from yourself. If it’s something that your 401(k) allows, you can borrow money from your vested balance.
401(k) loans are a popular choice because they don’t require a credit check. This makes it much easier to get money if you find it difficult to navigate investment property loan requirements.
However, there are numerous downsides to 401(k) loans that should be made clear, such as:
- Low borrowing amounts, as you can only receive the lesser of 50% of your account balance of $50,000.
- The risk of losing potential gains that set your investment progress back.
- Penalties and taxes if you miss any payments.
- Double taxation
As with some of the other options on this list, only take out a 401(k) loan if it’s one of your only options and you’re positive you can manage it.
Joint Ventures
Are you persuasive and a great collaborator? Consider a joint venture!
With a joint venture, you work with another person to make an investment property job happen. They agree to give you the cash you need to get started, you do the work, and then you split the profits.
So long as you define terms early and know how to work well with others, this can be a great way to realize your real estate vision.
Seller Financing
As we’ve established consistently throughout this guide, traditional financing can be difficult to access. Another great alternative is seller financing.
In this scenario, a seller of a property will act as a lender. They agree to finance your purchase, you put a down payment (or manage to talk them into 0 down), and then you make regular payments on the balance, plus interest.
It’s flexible, can help you avoid the requirements of a traditional bank loan, and can be a useful strategy if you develop a good relationship with the seller.
Ways to Fund Your Down Payment
You can fund your down payment with all of the above ideas plus:
Credit Card Cash Advances
Cash advances are one of the most available and convenient forms of funding. You borrow whatever your credit card issuer offers, take it all out in cash, and then work to repay it as quickly as possible.
It’s great in a pinch, but not the best strategy. Credit card cash advances usually involve high interest rates, numerous fees, and can put you in debt fast if you don’t have a strong repayment strategy.
Family and Friend Loans
Family and friend loans can be the best source of financing or a personal nightmare.
Aptly named, family and friend loans are when you borrow money from family and friends. Depending on your relationship, you could get a big loan with low interest and no requirements to start investing in real estate.
However, relationships can be tricky when money is involved. If relationships sour or you fail to follow through on your end of the agreement, things can go south fast. Take this into consideration before asking for money from friends and relatives.
The BRRRR Method
If you want to dip your toes into real estate investing, there are so many strategies to leverage. Take, for example, the BRRRR method.
The BRRRR method sees you:
- Buy a cheap, distressed property.
- Rehab it to make it liveable and appealing to local renters.
- Rent it out to start making money from your investment.
- Refinance the property to get your down payment/purchase price back.
- Repeat the process to make more money.
If you’re quick and successful, you can make real progress with this strategy.
Build Your Credit with Credit Suite
Ultimately, you need great credit and helpful insights to get the financing you demand for your real estate investing goals.
Credit Suite can make it happen.
Our Fundability System quickly recognizes areas of improvement and provides you with step-by-step guidance so you can work on those and make it easier to tap into the financing solutions you need for growth.
We match you with the best funding opportunities from our comprehensive list of lenders and vendors, offer one-on-one support, and help you build business credit fast for tangible results in your real estate investing journey.
Get started with Credit Suite to realize your real estate vision quickly and efficiently.
