Hi,
I seen this on Craigslist, and since I have NO money to invest into a property, and only have a parttime job, is this a good alternative? Once I get rid of my car, I would be able to make the monthly payments as I run a couple of websites and work part time.
100% - interest only - ARM
I wouldn’t do it.
What you stop you from doing this type of financing? What would be your other choice for someone with no money? Wait?
The reason I wouldn’t do it is because there would be NO equity (except appreciation) for atleast 5 years. That puts you in a very tight spot if things got bad. After 5 years of disappearing interest only payments your interest rate could easily shoot up to where the payments are no longer affordable and you would have minimal if any equity with which to sell on.
No money deals are absolutely possible. Some people say it can’t be done with commercial properties but Donald Trump is living proof if can be done. There have been many deals where he hasn’t put a dime of his own money in on and made 50-100 million or more. I can’t give you an answer on what type of financing you should use with no money because I don’t know what your trying to invest in.
I am looking to purchase a home to flip.
Homeowners are in pre-foreclosure, they are asking $339000. The comps in the area are $370000-$400000.
So it appears to have at least $30,000 in equity.
By flip do you mean assigning a contract to another buyer or rehab? If you wholesale you don’t need to own the property. If you rehab your going to need money for construction so a hard money lender would work best. However your numbers seem too slim for a rehab.
What will stop him from getting this type of financing is good credit and a decent financial position. You’re going to have to show you have a steady income, or have assets available. A credit score in the 700 range is important.
I just used this same loan – a 1.25% 5-yr Option Arm. Payment on a $450K loan is $1191 plus taxes and insurance. Don’t do it, however, unless you acquire a nice chunk of equity going in that can absorb the negative amortization. You can get a great monthly positive cash flow.
Da Wiz
Thanks for the replies.
My credit score is 7xx. I am trying to get rid of my car payment so it will help my income/debt raito and so I can have more income.
I was thinking the same. If the property has a lot of equity and I can afford to loose some money to intrest then it would probably be my best option since I dont have great income (verifiable) and a downpayment.
Does that sound right?
So what type of property would a loan like this benefit most? An apartment complex?
This is not a commercial loan and works just fine on single family homes.
Da Wiz
Blue Boxer- Are you not flipping this house anymore but rather keeping it for cash flow?
If you will be flipping the property, is it really significant what type of loan you get. I would say no seeing you will be in the loan for such a short time. On the other hand I would suggest going for a loan that is easy to qualify for with no points up front. Your rate will be slightly higher paying no points but you’ll keep money in your pocket. Your only going to pay on the loan for a few months I assume. So that might be an extra $50 out of your pocket each month with the higher rate as opposed to paying thousands up front for pts.
Ask your broker which has the cheapest pricing between say a 6month, 2,3, and 5yr arm. Often times the 5yr arm has the lowest pricing. Do not do the option arm, they are tough to qualify for requiring a very low dti. Also make sure the loan has no prepay penalty. Also you say your ditching the car tradeline, most lenders require a certain amount of tradelines, so if you don’t have many others you might wanna hold on to that.
Better yet, if you can, get the property under contract and just assign it to a new buyer for an assignment fee, that way you don’t have the bother of a loan.
Good response Wiz. I agree.
What is so bad about hard money for a home you plan on flipping?
It is not a bad thing. It is just a tool.It should be as a last resort due to higer rates , higher points, bottom line is the cost and the term of the loan. If you can use it to your advantage, great.
Blueboxer,
I think you’ll find that hard money lenders are also easier to work with than traditional banks. As long as they are getting their required rate they are more likey to take a chance on you.
Meet a few investors. Change of opinion… lease purchase with no money and credit…keep your car…