Most Arizona hard money lenders are going to shy away from a borrower who is looking for 100% financing. And there are some very good reasons that this is a smart idea for both the lender and the borrower.
Hard money loans are asset-based or secured, so the most critical piece of the entire deal is the value of the property being purchased and used as collateral. But the second most critical part of the deal is the equity that will be established with the down payment. When a borrower asks for 100% financing, there are several red flags that pop into the head of Arizona hard money lenders, and those are signaling issues that could impact both the lender and the borrower.
If the borrower has no cash for a down payment, then it is also likely that he or she has no money to invest in renovations or upgrades to the property. In short, the borrower is not in a strong or even stable financial position, which is a good indication that the project will fail. The lender is wondering how the borrower will make the payments on the loan, as well as how the carrying costs of the property will get paid. And the biggest worry is how will the borrower scrape up the money to make the final payment on the loan which is known to be very sizable.
The second problem that Arizona hard money lenders will see when asked for a 100% financed loan is that the borrower has very little working knowledge of the real estate industry. If the borrower is asking for a no money down loan, then he or she is either very naïve or very inexperienced. And both of those are huge negatives for a lender. Having no experience in the industry means that the borrower is likely to DIY the repairs needed and could even decrease the value of the property by making low-quality additions, repairs, and renovations to the property.
Who Is Taking A Risk?
The final issue that most Arizona hard money lenders have with no down payment on a loan is that the lender is assuming all of the risks on the deal. The borrower has none of his or her own money invested and will not lose anything but possibly some time if the deal falls through and the lender assumes ownership of the property. And should the value of the property drop before the lender takes possession of it and sells it, then he has actually lost money and time as well.
There Are Plenty Of Legitimate Hard Money Deals To Be Found
Most lenders are quick to tell you that 100% financing on a hard money loan is a huge risk and not one that is worth taking. There are plenty of borrowers out there who know the real estate business and have the money to make the down payment and still fund the rest of the project. Those are the borrowers that most lenders choose to work with. There is a calculated risk, but the reward is also far more positive and likely for the lender.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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