Financing real estate properties or investments can be literally put a hole in our wallets, not to mention that it actually takes a lifetime to save up for it. Let's face it, unless you were born with a silver spoon in your mouth, purchasing a real estate property on your own can be difficult.
Real estate loans to the rescue
Thankfully, there are numerous banks and financial institutions that are willing to help future real estate property owners and investors in financing their real estate purchases. Real estate agents and brokers can also point you to the ideal lenders to accommodate your financial situation. Believe it or not, relying on other people's money to build real estate investments is how real estate giants made it big and have turned their assets into an empire. But for lenders, the lesser money you have invested on a property, the riskier the loan. This is true because 100% financing or loans does not guarantee a "no-money down" privilege. Let's take a closer look at these 100% loans.
So what are these 100% loans?
With the maximum loan to value ratio (LTV) on loans at 90%, investors need to be a little more creative. Most investors limit the amount of cash to closing by asking the seller for a 2nd mortgage or for 2-3% concessions to cover the closing expenses. There are programs which will allow you do this so it's best for you to be aware of the rules about your program before writing an offer; take note, the percentage is taken from the purchase price and not the loan. This allows you to maximize seller contributions without going overboard.
Loan Precautions and advice
Most lenders might think that the property is overpriced if seller concessions go above the limit of the program. Partnering with your contractor is also an ideal way for you to limit the cash you put in the loan; this would apply if the property requires rehabilitation or maintenance work. You can avail of the contractors' services in exchange for a percentage of the profits and you can also choose to defer their fees until the property is sold.
With that in mind, it's really up to you on how much you want to cap your costs.
