When it comes to real estate investing, understanding the relationship between 100% financing and Loan-to-Value (LTV) ratios is essential for making strategic decisions. While 100% financing sounds appealing—allowing you to acquire properties with no money down—it comes with risks and limitations. On the other hand, LTV is a critical metric that lenders use to evaluate their risk exposure, directly impacting how much they’re willing to finance. Let’s break down how these concepts intersect and what it means for you as an investor.
What Is 100% Financing?
100% financing means you’re purchasing an investment property without using any of your own money. Essentially, the entire cost of the property is covered by borrowed funds. This may come from:
- One loan covering the full purchase price.
- A combination of loans, such as a primary mortgage paired with a second lien or private loan.
- Creative financing strategies, like seller financing, hard money loans, or partnerships.
While this allows you to preserve capital and potentially scale faster, it also means you have maximum leverage—which can be risky in a market downturn.
What Is Loan-to-Value (LTV)?
LTV is the ratio of the loan amount to the appraised value of the property. Lenders use LTV to measure risk—the higher the LTV, the riskier the loan.
For example:
- If you’re purchasing a property valued at $200,000 and the lender offers 75% LTV, they’ll finance up to $150,000.
- You would need to provide the remaining $50,000 as a down payment.
Lenders often limit LTV to 70–75% for investment properties, as it reduces their exposure. They expect you, as the investor, to have “skin in the game”—which demonstrates commitment and reduces the likelihood of default.
The Catch With 100% Financing
While 100% financing may sound like a dream, most lenders won’t offer it on a standalone basis for investment properties because it significantly increases their risk. Here’s why:
- No equity cushion: With 100% financing, the lender takes on all the risk. If the market dips even slightly, they could lose money.
- Higher interest rates and fees: Lenders that offer full financing often charge higher interest rates, points, or fees to compensate for the increased risk.
- Limited availability: 100% financing is rare with traditional lenders. It’s more common with private money lenders, hard money loans, or creative financing deals, which may have stricter terms.
100% Financing vs. 75% LTV: Which One Is Right for You?
The key difference lies in leverage and risk. Here’s how they compare:
| Factor | 100% Financing | 75% LTV Financing |
|---|---|---|
| Capital Required | No personal cash required | Requires a down payment (25%) |
| Leverage Level | Maximum leverage, higher risk | Lower leverage, reduced risk |
| Lender’s Risk | Higher, may charge more fees/rates | Lower, better terms and rates |
| Equity Stake | No equity upfront | Immediate equity (25% ownership) |
| Availability | Limited (private/hard money lenders) | Common (DSCR, conventional loans) |
Best for 100% Financing: Experienced investors with strong exit strategies, proven cash flow, or partnerships that reduce individual risk.
Best for 75% LTV: Investors looking for better loan terms, less risk, and a stronger equity position.
How to Use 100% Financing Creatively
While most lenders won’t offer 100% financing upfront, you can structure deals creatively:
- Hard Money + Private Loan: Use a hard money loan for the bulk of the financing and a private loan for the down payment.
- Seller Financing: Negotiate with the seller to finance part of the deal, reducing your cash requirement.
- BRRRR Strategy: Use BRRRR (Buy, Rehab, Rent, Refinance, Repeat) to effectively achieve 100% financing by refinancing your original capital out of the deal after the property is stabilized.
Key Takeaway for Investors
While 100% financing allows you to preserve capital and scale faster, it comes with higher risk and fewer financing options. On the other hand, financing at 75% LTV offers more stability, better loan terms, and reduces lender risk. Smart investors often balance the two—using LTV financing for stability and selectively employing 100% financing strategies to maximize growth potential without overextending their leverage.
Pro Tip: Whether you’re exploring full or partial financing, always focus on cash flow, equity growth, and exit strategies to mitigate risk and boost your long-term returns.
Need help securing financing for your next deal? At REP Financial, we specialize in private money loans that give you the flexibility and speed you need to close deals efficiently.
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