What is a Fix and Flip Loan?
Fix and flip loans are financing for people and companies who want to purchase real estate for the specific purpose of making improvements to the property and then selling the property quickly, for a profit. Fix and flip loans for new investors tend to work the same way as for veteran fix and flip investors because the business model is the same. Fix and flip loans tend to be short term because the faster an investor finishes and resells the property, the more money that investor can typically make.
Check out this easy guide to loan types for fix and flip loans for beginners. Then get a feel for how easy the process can be when you work with the right lender by clicking to get an instant quote.
Hard Money Loans
A hard money loan is a short-term loan for the purchase of real estate. The loan is secured by the property being purchased. If you are looking at how to get a hard money loan for a flip, look at how willing the lender is to work with you on your specific project, what the interest rates are, and how quickly the lender can get the deal done. This type of loan tends to be best for flippers who do not have good credit or face difficulty in securing financing.
Home Equity Loan or Home Equity Line of Credit
A home equity loan or line of credit is a type of house flipping financing in which the borrower uses their property as collateral to obtain money to make repairs to the home for the purpose of resale. This financing usually requires the homeowner to have at least 15% equity in their home.
401(k) Loans
A 401(k) loan is when you borrow money from your own 401(k) retirement savings account and then pay it back. This type of loan is usually only available to people close to retirement age who have large 401(k) amounts.
Personal Financing
Personal financing is a loan made directly to a person, which the person pays back over time with interest. This type of loan works best when the flipper has good personal credit, income, and doesn’t need a substantial amount of money for the flip.
Seller Financing
Seller financing is when the buyer pays the seller in installments or the seller holds the mortgage to the property. Few sellers tend to be interested in or able to provide this.
Business Line of Credit
A business line of credit works like a credit card. The lender sets a maximum amount the borrower can use. Whatever money the borrower uses from the credit line, they have to pay back with interest. This financing is typically available to experienced flippers only, or businesses with a track record of success.
Loans from your Personal Network
When someone in your social sphere, such as a family member or friend, lends you money, that is a loan from your personal network.
How Does a Fix and Flip Loan Work?
Here is the simple answer to the important question, “How does a fix and flip loan work?” You find a piece of real estate in a great neighborhood. Once you have a financial plan that covers the cost of purchasing the property, fixing it up, and reselling it, you obtain house flipping financing.
Note that house flipping financing is not your typical mortgage. While mortgages tend to be long-term loans, fix and flip loans are taken out quickly and repaid quickly. This means that flippers, especially those seeking first time fix and flip loans, need to learn how to get a fix and flip loan before they get started, if they want to move quickly and make money. If your plan meets the fix and flip loan requirements, the lender will supply the money to make the purchase and repairs.
Fix and Flip Loan Requirements
Fix and flip hard money requirements are basically the same as fix and flip business loan requirements. If you are like most flippers, you are trying to move as quickly and efficiently through the entire process as possible, from finding the property, to securing financing, to making repairs, to completing the resale.
To speed along the financing portion of the fix and flip process, be ready to present the lender with the standard fix and flip loan requirements.
Minimum Credit Score Required
Typically, the better your credit score, the more likely you are to get higher loan amounts and lower interest. Some lenders have a minimum credit score for lending. Private lenders, especially those specializing in fix and flip loans, tend to be more flexible about how important a credit score is.
Credit Requirements
Another common credit requirement for fix and flip loans is a loan-to-value ratio calculation. To calculate, compare the ration of the value of the loan to the value of the property at time of purchase. Most lenders have a maximum percent of loan-to-value that they are willing to lend.
What Loan is Best for Flipping Houses?
With so many options out there, it’s good to know how to identify the best fix and flip loans. Here is a breakdown of your choices.
Fix and flip loan from a hard-money lender
These loans are best for people who need to move fast and don’t have well-established credit. Companies that specialize in house flipping financing will be set up to provide hard money loans to a variety of borrowers.
Conventional Loans
Conventional loans are made by banks and credit unions. They work well for people who have established credit, a relationship with the bank, and have time to go through the traditional banking processes.
Portfolio Loans
Portfolio loans are the same as conventional loans, except the lender hangs onto the loan and does not sell it to a secondary lender.
Private Investors
Private investors are family, friends, or acquaintances who want to invest along with you and have cash to lend you. This works when you know people with money to lend and they are people you want to do business with.
Crowdfunding
Crowdfunding is when a lot of people, some who know you and possibly many who don’t, give you money because they believe in your business idea or they want to help you personally.
Seller Financing
A handful of sellers do not want to own the property anymore, but also don’t need the cash from the sale of the property right away. They may offer to let the buyer pay for the property in installments for a fee or interest.
Why Choose Best Lending Co.
House flipping financing is unique. It’s not a typical mortgage that will be repaid over 15 to 30 years. Nor is it a typical business loan that is repaid over 5 years. Best Lending Co. understands that for a flipper to make money, they have to be able to move quickly. That includes not just getting financing, but also repaying the financing and completing the project.
Best Lending Co. allows borrowers to apply online. That not only saves the time and hassle of sitting in a bank, filling in paperwork, but also provides the flexibility of supplying the necessary information when it’s convenient. All of Best Lending Co’s documents are online. You even sign online.
Because Best Lending Co. specializes in fix and flip loans, they know what to look for, quickly. They understand traditional flipping as well as rental financing. This means that they will be able to assess your application quickly, allowing you to close in as little as 5-15 business days.
How To Get a Fix and Flip Loan
To make your application sail through the process, have the following information ready to go. Below is a handy checklist of the things you will need.
Know what type of project you are doing. Is it a fix and flip? Are you building on a vacant lot? Is the property you are purchasing for residential or commercial rentals? How many units will you rent?
Know how much the property will cost to purchase. Have a good plan for what it will cost to build or make repairs. The more you can back up your numbers with research and professional estimates, the better.
Be ready to be specific about your property. Where is it? What is it? The local tax office information, much of which is online, for the property may be extremely helpful for this documentation.
Be prepared to be contacted. Have the contact information for how to reach you quickly ready to go. Getting house flipping financing has never been easier. Click to start today.
More Information on Fix and Flip Loans
Best Lending Co. prides itself on being a great partner to property investors. We take the efficiency and ease of our process seriously because we know that time is money, especially in the fast-moving real estate market.
- Fix and Flip Loan Application Process. Our application is 100% online for your convenience. We have streamlined it down to the essentials, to help you get the money you need as fast as possible.
- Fix and Flip Financing Timeline. Once you input your information into the application, we do our best to get your application processed and the loan closed in days, not months. Our fix and flip loans close in as little as 5 business days. Our rental loans close in as little as 15 business days.
- Fix and Flip Loan Terms. We love repeat customers and keep our rates highly competitive to keep our borrowers coming back. We offer fix and flip bridge loans of up to 80% of purchase and 100% of rehab costs at only 9.5%, for buyers who qualify. For those with a minimum FICO score, we offer long-term refinancing and purchase loans for long term rentals up to 80% loan-to-value, at a fixed rate of 6.75%. For those with a minimum FICO of 720+, we offer short term refinancing and purchase loans for short term rentals up to 75% of loan-to-value, at the fixed rate of 6.75%.
