Wondering how to get a loan to fix and flip a house? Look no further and check out our beginner’s guide on how to get a loan to flip a house.

There is a ton of money to be made flipping houses!

Did you know that it’s possible to make a staggering $1 million annually flipping houses? The problem is that the costs associated with flipping houses can be prohibitively expensive, limiting many people from getting into the market. Money is by far the biggest barrier to entry and success in this industry.

What if you could take out a fix and flip loan to get started? If you want to get into the house-flipping industry, you’re in luck because you can get a loan to finance your fix and flip project. In this post, we’ll guide you through everything you need to know about house flipping loans what you have to do to get one.

How Do House Flipping Loans Work?

As a real estate investor, you can easily get a loan to flip a house, but the process is quite different from taking out a loan to buy a home or an investment property. It’s impossible to get a loan from traditional mortgage lenders, and really, a mortgage is not what you need for a project that will be complete in less than a year. The best way to go about this is to go through hard money lenders and other private real estate lenders.

Most fix and flip loan lenders offer a 6-18 months repayment period, but this can vary between different lenders, so you need to research to find the right one. In general, they come in fixed rates, and you may need to make payments for the duration of the loan. There are exceptions, however, as you may get the option to make a full payment at the end of the term once you make a sale.

Benefits of Fix and Flip Loans

These lenders give out money with the intention of getting quick repayments. Getting a loan to fix and flip homes can be beneficial because it will give you increased buying power, and you will have less money at risk. Besides, it will allow you to pursue multiple projects simultaneously, which will maximize profits.

One of the best things about these loans is that they’re designed to take care of every cost involved in the project. This includes purchasing the house and making the repairs and renovations. Essentially, these loans are calculated in two different ways, and this hand, it depends on the individual lenders.

First, they could use the Loan-to-Cost method, which means you’ll get a loan amount as a percentage of the anticipated costs of the project. The second method is the Loan-to-Value method, where you get a loan amount as a percentage of the projected value you’ll get after renovations and repairs are done.

Fix and Flip Loans Qualifications

Qualifying for a fix of flip loan is quite different from qualifying for other traditional loans as well. The qualification will be focused on the property you want to purchase and the business plan you have for it. For instance, the lender will calculate whether the after-repair value of the house justifies the loan and whether the renovation timeline and budget are realistic.

Some of the documentation will require your bank statements, government-issued identity, a sales contract of the property, and your personal tax returns. They may also ask for documentation of other possible fix and flip projects you have completed before estimates from a licensed contractor for the proposed renovations and repairs, among others.

One of the best things about these loans is that you don’t need to showcase your experience in handling similar projects. As long as the numbers make sense to the lenders, you can get the loan even if you’re new to the real estate industry. Still, you need to understand that not many lenders would be willing to accommodate first-time house flippers, and those who accept you will offer less favorable terms.

Will They Check Your Credit Score?

It’s a given that the main focus for the lender will be the property and not necessarily the borrower. However, it’s still important for you to understand that they will check your credit score to gauge how well you pay debts. With a higher credit score, you’re bound to get a better amount and the best loan terms compared to people with low credit scores.

What Are the Downsides of Fix and Flip Loans?

While fix and flip loans have their benefits, they do come with downsides, but you should be aware of them before you embark. The first downside is the carrying costs, which happen to be one of the biggest expenses of the project. Carrying costs include the money you spend when you own a property.

For the duration of time you own the property, you can expect to pay both property taxes and insurance. These are carrying costs, and they will accumulate depending on how long it will take you to flip and sell the house. The other downside is the high-interest rates involved with the loan, especially if you get the money from a hard money lender.

The APR rate could go as high as 7% for highly qualified borrowers, which is quite the hefty amount if you consider that the average APR rate for a 30-year fixed-rate mortgage stands at 3%. For individuals with a poor credit score, the AP is bound to be as high as 13%.

In addition to all this, you also have to factor in all the fees involved, such as the origination fee. This can be anywhere from 1% to 3% of the loan, which is a significant amount that you should not overlook. Beyond this, you need to consider a down payment of the purchase price, which can be anywhere between 20% to 45%, the materials and labor for the house repairs and renovations, and the realtor and closing costs when you find a buyer for the property.

Top Ways to Get Fix and Flip Loans

If you’re trying to get funding to start your fix and flip journey, there are many lending options you can explore that will allow you to quickly purchase property and get the project underway. If you’re new to flipping houses, you don’t have to worry because you can also choose from various small business loan options that will help you grow your profile as a real estate investor. Let’s look at some of the best ways to get fix and flip loans.

Family and Friends

As a beginner, you may have family members or friends who would like to invest in real estate, which could be the best place for you to start. As a real estate investor, personal connections are incredibly important, and you may be surprised to find that relatives are willing to finance your first project.

One of the best things about getting a loan from friends or relatives is that they may give you the lowest or no interest rates at all. Still, write down the loan terms and specify the interest rate, if any, because this would protect both of you in the future.

Get a Financing Partner

If you’re already in the flipping business, you may already have the knowledge on great flipping opportunities but lack the funds to get it done. This is a great place to bring in a financing partner that will bring something different to the table. If you’re bringing the knowledge and they’re bringing the money, you can discuss what percentage of the returns each one of you gets.

Home Equity Loans and Lines of Credit

A home equity loan and a line of credit are also popular options for fix and flip loans. However, both of these are only viable options if you already own a home. If you qualify for any of these loans, you can draw the money as needed, and the best part is that you only pay interest for the amount you use.

Home equity line of credit loans happen to have very low rates, but the downside is that you need enough money to pay both your mortgage and the loan. Most banks will offer you as much as 85% of the value of your home, but if this is not enough, you can always combine it with another financing method.

Personal Loans

If you have good personal credit, you can get a personal loan and use it to fix and flip a property. Unsecured personal loans happen to be very flexible because lenders don’t specify what you have to use the money on.

The next best thing about personal loans is that interest rates can be as low as 5%, and you get to pay the amount in monthly installments. On the downside, most personal loans are quite small, and you may have to combine it with a different financing method for the money to be enough.

Finding the Best Fix and Flip Loans

There you have it! If you have been meaning to get into the real estate industry and want to start with fixing and flipping houses, then you’re not at a loss. Even if you don’t have money, you can get into it through a fix and flip loan. Explore all the above options and start your journey to success.

That said, if you’re looking for funding, please get in touch with us, and we’ll be more than glad to accommodate you.