How does it work with “No money down hard-money lenders”?
To get a no-money-down hard-money loan for buying a property one needs cross-collateralization. That means the borrower needs to own a property that either has enough equity or better yet, is owned free and clear.
Here is an example. You want to buy a property for $500,000 with no money down. You already own another property free and clear worth also $500,000. That would be a great example of buying a property with no money down and using another property as cross collateral.
This works out because the combined value of both properties is $1 million. The required loan is $500,000. The Loan-To-Value (LTV) in this example is 50%.
There are many benefits of working with no money down hard-money lenders
For example, let’s say you come across a property you feel is a great deal, but you don’t have the cash to go forward with it. The no-money hard money option with cross-collateralization gives you the option to purchase the property with no money down. If someone did not have the cross collateral they normally would have to put down 30%.
No-money down hard money loans can also help people who want to flip a property. For example, an investor had paid cash for a property in Palm Desert. He wanted to buy another property in San Diego and flip it. Being able to buy the flip property with no money down, using the Palm Desert property as cross collateral, made the purchase possible. It also allowed him to close on the property quickly.
In some cases, the loan does not have to cover 100% of the purchase price. Some borrowers may have enough money to put 10% or 20% down. They have a partial down payment and then they can cross collateralize it with other property’s equity for the rest.
This works well when a buyer may not have enough collateral to cross-collateralize the whole loan amount to make it work for a no money down loan. But they have enough equity for us to bring down the amount of cash they need from 30% to 10 or 20%.
Common sense hard-money lending is all about making sure the borrower gets what he/she needs while protecting the investor via enough equity. No money down hard-money lenders can operate with the same guidelines.