Fix & Flip
How to Get a Loan for Your Fix and Flip Property
If you’ve ever watched one of those “fix and flip” shows on TV, they make the process look easy and straightforward: buy a home in need of major repair, put in a little elbow grease, and you’ve got yourself a small fortune! But if you start down this path, you’ll quickly find that getting financing can be difficult.
As the investor, you need money so that you can renovate the home before selling it. But banks are not in the real estate business, and they aren’t really keen on helping people looking for fixer-uppers fund their repairs. This makes for a tedious process and if you live where the real estate market is hot and properties are in high demand, you could find yourself left in the dust before you even start to make an offer!
So what can you do?
The Best Types of Financing for Fix and Flip Loans
Private Money Loan/Hard Money Loan - This is the best type of loan for people looking to fix and flip homes and need money fast. Maybe you don’t have the time or the credit to wait for the bank’s “blessing” or you’ve got credit issues that would prevent you from getting a traditional loan. Private money loans and hard money loans are available to experienced investors, flippers, contractors and developers.
Cash-Out Refinance - This loan is great for investors who have enough equity build up in an existing home or property.
Home Equity Line of Credit - A HELOC is ideal for flippers that have an owner-occupied home. This allows you to access money using the equity you’ve built up in your home for use when you find a property that you’d like to fix and flip, but don’t yet have a specific project in mind.
The Fix and Flip Hard Money Loan - The Best Choice for Most Investors
What makes this loan stand out among the other choices for investors? For one, it bypasses traditional loan processes. For example, hard money loans can be approved much quicker than traditional loans. There are less qualifications to meet and you can get funding in as little as 15 days if not sooner.
The downside to this is that hard money loans can be more expensive than traditional loans. With private money loans, what matters is the collateral that you are securing the loan against. Your credit report or income matter far less. Your investment experience, however, is extremely important as well. We only lend to experienced investors and developers.
What Do You Need in Order to Qualify for a Fix and Flip Hard Money Loan?
- A 550 or greater credit score (640 or above is preferred)
- Full rehab or construction budget
- If you’re going the DIY route of fixing and flipping the home, that you have 2-3 previous home rehabilitation projects under your belt.
- Or if you’re new to fixing and flipping, the information for a licensed contractor that will be helping you.
Although your credit score isn’t as crucial here as it is for traditional loans, the higher it is, the more likely you’ll be to get approved at lower interest rates.
What are the Financing Limits to Fix and Flip Loans?
Hard money loans also have specific terms and interest rates, just like traditional loans do. These numbers may vary from lender to lender, but generally speaking, a hard money loan:
- Has a 1-2 year term
- Takes approximately 10 days until funding is available
- Interest rates that range from 8-12%
- Lender fees (which are usually taken directly out of the loan) at 1-5%
- Closing costs of around 1% (these are usually paid out of pocket)
- Monthly repayment time frame. At first you’ll pay interest only, and then start to repay the rest at the end of the term. Normally there is no penalty for pre-payment. There is also an option of interest reserve. You don't pay interest during the term of the loan.
How much can you get with a private money loan? With hard money loans, the limit is gauged in terms of a percentage known as the LTV or loan-to-value ratio, or its ARV or after-repair-value. For fix and flip home loans, the ARV can finance home renovations, whereas loans made with the LTV ratio cannot.
If you have several home renovation projects under your belt or a licensed contractor that you’re working with to fix and flip a home in need of repair, call us today to learn more about how a fix and flip hard money loan can help you buy a home in need of repair, contact us today at (number) and learn how you can compete even with all-cash buyers in a competitive market!