Guide To Getting Loans To Flip Houses
If you are wanting to get into the business of buying and flipping homes then you will likely want to secure a loan for the purchase of the property in order to do so. You may be wondering whether or not it is even possible to get a loan for flipping properties. If that is a concern then you might be surprised to learn that an average of about 200,000 homes are renovated every year in the U.S. and in most of those situations the investor secured loans to renovate and flip the property. Here is a guide to getting loans to flip houses.
Introduction To Getting Loans To Flip Houses
The first step to getting a property to flip is to find a great piece of real estate. Once you’ve located a good property then you’ll need to figure out how you’re going to fund the purchase and the renovations so that you can flip it. Even if you have the kind of money it would take to do it out-of-pocket most investors don’t choose to go that route.
For traditional funding, you will usually need to have 20% of the purchase price as a down payment and sometimes more. How much more will depend on your particular circumstances and the lender that you are using. It will also be necessary for you to have enough money to cover the payments on the mortgage, insurance, HOA fees if there are any on the property and the cost of the renovations.
What you will find as you begin investigating is that most people who invest in properties for the purpose of flipping them do not use traditional routes of financing. This means they don’t go to the most usual lending institutions. The reason is that those institutions generally don’t understand buying and flipping properties and so they’re either reluctant to make the loan or they make the terms difficult.
If you flip houses full time then you are an investor and this might mean that your income isn’t regular. In fact, in some situations, your income may be seasonal. This is yet another reason why banks and other traditional lending institutions are very reluctant to make loans to flip houses.
Some beginner real estate investors will consider getting a home equity loan as a way to raise the money to get started, or they may ask family or friends. The only issue with this is that most experienced investors see this as risky. They don’t want to be in a position where they might potentially pay family and friends late or worse, not at all. They also don’t want to get in a situation where if their investment somehow went bad that they lose their home.
What experienced investors do instead is to get a loan that is specifically designed for real estate investing with the purpose of fix and flip. This means going to different lending resources rather than to some of the more traditional ones. Some of these loan options will give the investor an opportunity to get loans to flip houses that are more suited to what the investor is doing.
Hard Money Loan
This is a very common type of a loan that experienced investors use to fix and flip properties. This helps them secure the money needed to make the purchase, complete the necessary renovations, and then sell the property with the intention of doing so within a maximum time frame of one year. These loans are often highly suitable because they are available even when the property itself is in fairly poor condition.
These types of loans will very often have easier terms and lower qualifications for getting approved. They are there to help investors to make their investments and do the necessary renovations. These loans are often approved quickly so that the investor doesn’t miss out on the opportunity to buy the house. In fact, it’s not at all uncommon that funding is made available in as little as two weeks.
Where Can An Investor Find A Hard Money Loan?
The best place to start searching for these types of lenders is online. It’s also possible for a new investor to build a relationship with others in the industry and through those relationships, they can be introduced to or told about hard money lenders. If an investor goes online, the hard money lenders they find there will often do their business on the internet exclusively. This means it won’t be necessary to go into a physical location.
Neal Business Funding is the premier lender when you are looking for a hard money loan! Call now or fill out our contact form to the right!
Cash Out Refinance For Fixing And Flipping Properties
This is a strategy where an investor already has a property and they use it to finance a new purchase. It’s sometimes easier when an investor already has an investment property that has been fixed and has existing equity that can be used to borrow against. The use of this equity from a property that is already owned is often an easy and fast way to get the money needed for a new purchase.
In a typical situation, this type of loan will not have any kind of restrictions put on how the money is used. This means the investor is free to use it as they see fit. For that reason, it won’t be necessary to get a bank or other lending institution to approve the new investment.
Where Can An Investor Find Cash Out Refinancing?
Because this is a loan against an existing property that the investor already owns it is something that is available with traditional lenders such as Fannie Mae approved mortgage lenders. There are some lenders that specialize in making these types of loans to real estate investors. If you find one that specializes in these types of loans then you’ll find that they offer better flexibility. They are familiar with and comfortable with making these kinds of loans and that will usually mean the loan can be approved and in your hands more quickly.
This type of loan is designed to be very temporary to help an investor complete the transaction. Often the investor will have another property that is about to be sold but shortly before it is sold they still want to go ahead and make a new investment. This type of loan allows the investor to go ahead and buy a property for the purpose of fixing and flipping it without having to have the other property already sold. This type of loan is different from a hard money loan in that it doesn’t allow you to finance a home to rehab it and flip it.
This loan is most suitable for an investor that comes across a fantastic deal on a property which is likely to sell before the investor would have more funds from the sale of an existing property. They use this loan in order to buy a great deal and then they will typically sell the other property soon afterward which then gives them their ability to get a loan that allows them to pay off the bridge loan.
The main thing to remember about this type of loan is it is very short-term and has a narrow time window. This is a highly specialized type of loan that allows an investor to purchase a property that is a great deal before they actually have the funds to otherwise buy that investment. These types of loans will have higher rates than what you might expect from a traditional bank loan but at the same time, they have lower rates than the hard money loans.
A bridge loan is a specialty product and isn’t available in many credit unions or banks. They are most often found through non-traditional or private lenders. Often a mortgage lender can recommend a source for getting a bridge loan.
Additional Options For Fix And Flip Purchases
A couple of additional options for raising funds for this type of investment would include a business credit card and real estate crowdfunding. By securing a business credit card you will have a line of credit that is revolving and the amount that you can get will be based on your income and credit score. It will have a higher rate of interest but if you pay it off fairly quickly that shouldn’t be an issue.
One of the newer ways to raise money is through crowdfunding. Often this is where investors pool money to find worthwhile projects. If you’re one of the investors then you are able to get a stake in the potential profits. This is a way for a new investor to get involved without doing any hands-on investing or renovating.
How Do You Get The Loan
There are several ways to obtain a fix and flip loan, but the chances are of getting approved by a traditional source like a bank are slim. This is because banks tend to provide long-term loans and they deem fixing up properties as risky activity. Banks do offer these loans, in some cases.
However, the best place to turn to a loan for flipping houses are lenders such as Neal Funding. Such companies offers business funding, and flipping homes is considered by many lenders to be a business activity. As for how to go about applying, you can usually apply right online or via the phone if the lender allows.
What Are The Rates
Generally speaking, the rates on loans to flip houses can greatly vary from one lender to the next. However, these types of loans do typically have higher interest rates than traditional loans because they are short-term financing solutions and they are a bit riskier than traditional forms of lending. There are a lot of factors that determine what your interest rate will be on a fixer upper loan.
How Do They Work
The way they work is a lot like traditional loans, which means you apply for a fixer upper loan with a lender. If you’re approved, then you’ll receive your funds, which can be used to purchase the house you have your eye on. Then you will be required to make payments on the loan, and you’ll know when to make your payments because everything will be outlined in the terms and conditions.
Who Should Get One
People involved with the real estate industry should consider getting this loan. The same goes if you’re an investor or you’re simply looking to get involved in a new business. Experienced and novices alike should get a fixer upper loan.
The truth is you don’t even need experience in regards to fixing up homes and reselling them. If you have always wanted to flip homes, then you can apply for a fixer upper loan. As long as you meet the criteria set forth by the lender, then you should have no problems getting approved for the loan.
Benefits of a loan to flip a house
There are several benefits. These loans are much better than traditional ones. That is because:
One of the best things about fixer upper loans is how fast you can receive your funds. The entire process from start to finish is much faster than obtaining a loan from a bank. The length of time it takes to close on a fixer upper loan depends on several factors, but generally speaking you can have everything done within 30 days or even within 14 days.
This is a major benefit. Homes that are sold as is or that are obviously fixer uppers, tend to sell quickly. You don’t want to be waiting around for approval on a loan because the longer you wait, the more of a chance that someone else will buy it.
- Easy Approval
All lenders have criteria that their applicants have to meet before they approve them for a loan. However, those who provide loans for flipping homes are more lenient because they know what the home being bought is for, flipping. In other words, the lenders know the homes aren’t exactly in the best shape, therefore they won’t want to know much about the property.
- Current Value Of House Doesn’t Matter
The current value of the house doesn’t matter either. As previously mentioned, houses that are going to be flipped tend to be in bad shape, therefore the current value isn’t really of major concerned to the lender as they are more concerned about the ARV (after repair value). When you purchase a house and you apply for a mortgage, this isn’t the case.
In fact, the strength of the deal is what the lender will care about the most. If they think there is profits to be made, then they’ll likely approve the loan. They are thinking about the future value of the home and not what it’s currently valued at; At least in regards to making a decision to approve clients for a fix it and flip it loan.
- Buy Any Type Of House
Another good thing about these loans is that you can buy any type of house. Whether it’s a single family home, a two-story house, a bungalow or any other kind of home, you can buy it with a fixer upper loan. You are not limited to a specific piece of property.
- Credit Isn’t As Much Of An Issue
Your credit will not be a major problem when applying for loan to flip homes. There are other important factors that a lender will take into consideration, but credit is not near the top of the list. Even if you have bad credit, there is still a chance you could be approved for a loan to flip homes.
- The Funding Amounts
The funding amounts for these loans do vary from lender to lender, but you can find these loans available from around $50K to all the way up to millions of dollars. If you come across a mansion that is in bad condition and you want to flip it, then go ahead and apply for a million dollar loan or more. The same goes if you find a cheap house for $60K or less. The bottom line is it doesn’t matter how much the house you’re looking at is on the market for, the chances are there is a lender, such as Neal Funding, that offers fix it and flip it loans in that range.
Do you want to obtain a loan quickly, so you can flip a house? Do you want to have a good chance of being approved for a loan and all of the other stuff mentioned above? Of course you do, which is why you should apply for a fixer upper loan.
Do you want to flip houses and potentially make good money doing it? Of course you do, but you will want to look into getting a good rate on a loan to flip a house. The sooner you get a loan, the sooner you can start flipping homes. Just remember to apply for a loan with a reputable place that is known for good interests rates and good customer service.
Any experienced investor understands that they need money to make money with fix and flip properties. This means having the ability to get a loan when it is needed. Hard money is perhaps the most common loan for this type of investing simply because it’s faster than other options and the qualifications are more lenient. For any investor wanting to get started, you should do your due diligence and your homework so that you are properly prepared when you approach a lender.