Fix and Flip Loans for Beginners
Have you heard of fix and flip loans but don’t know exactly what they are or how they work? Check out this guide for fix and flip loans for beginners.
Home flipping loans such as bridge loans or short-term mortgages for investors to use when purchasing real estate properties. You may use the loan amount along with some personal savings to purchase the house and pay for repairs and upgrades. Then you can find a buyer to purchase the house at a higher price, earning you some profits.
When choosing fix and flip loans for beginners, it’s essential to check out different lenders, compare the upfront fees and the loan restrictions. You should also check any additional services the lender offers during the application process, their loan requirements, and their application.
The best fix and flip lenders have simplified this traditionally tiresome process, making it more efficient, seamless, and faster. Below is a guide to help you find the best fix and flip loan to finance your first real estate investment:
The Price of Flipping a House
Fix and flip is one of the most lucrative investments in real estate. Investors think that the process only involves purchasing a property, fixing and renovating it, and then selling it for profit. However, this is not the case as there are many other processes and financial investments involved.
Flipping a house will require a significant financial investment compared to buying a home to reside in. When considering a fix and flip project, your first step should be to look at your financial capabilities and loan options. Remember that you will need money to buy the house then an additional amount to cover renovations, property utilities, taxes, and insurance covers for the house.
After calculating the total amount of money you need, you can look for a reputable lender to help you finance your dream. However, you will need to have a deposit before being approved for a loan. That’s because lenders consider house flipping a risky business to finance.
Additionally, some lenders prefer not to work with beginners and inexperienced home flippers. They may require you to show proof of at least one home that you flipped at a profit.
On the other hand, some lenders may choose to work with the beginner but charge higher loan and interest fees. Ensure you are diligent enough to find a lender who will meet your financing needs.
The Best Fix and Flip Loans for You
Cash is the biggest barrier to getting into this space, despite house flipping being one of the most lucrative and successful businesses. It requires a lot of money to purchase a home, fix it, and then sell it for a profit. Thankfully, you can always turn to financial institutions to lend you money to do this project.
Below are simple ways to borrow money to help you flip a home:
Borrow Your Friends and Family
Is this your first time fixing and flipping a house? Then it’s advisable to borrow your trusted friends or family members for the cash to do this project. You can look for individuals who want to invest in real estate.
However, before going to your family or friends, ensure you know the risks of borrowing money from the people you’re close to. If you don’t repay the money, your relationship could be destroyed for good. You can draft a contract or an agreement to ensure that you will repay the loan in full once the project is completed.
Hard Money Loans
Many flip and fix investors use hard money loans to finance their projects. The loan is secured by a real estate property and can help you buy, fix, renovate and upgrade a home. If you don’t know how to flip a house and this is your first time, this is the best loan for you.
Hard money lenders often have very low qualifying requirements. That’s because they focus more on the property you purchase and its potential value at the end of the project than your borrowing history.
You can also receive your funding within 15 days of the application, making it a faster approval process than other loans.
Cash-Out Refinance Loans
This type of loan is where the fix and flip investor looks for a loan to refinance their current property. Then, they will pay off any pre-existing loans on the property and use the money they get to refinance another project. This loan helps real estate investors free up equity by borrowing to pay off the existing mortgage and purchasing their next fix and flip property.
The amount of money you borrow from cash-out refinance should first pay off your debts. Then you can use the balance to finance another project.
Fortunately, borrowers are not restricted or limited on how to spend the money from the loan. Therefore, real estate investors can take advantage of this to finance their fix and flip home investments.
An Equity Line of Credit
This type of loan works in the same way as a credit card. The lender will provide the borrower with a line of credit depending on the borrower’s available equity and the value of their current home. Depending on the lender’s terms, you can draw money from the credit line for your project.
This means that you don’t have a specified amount that you will borrow. Hence, the lender will only require you to pay the interest rate on your borrowed amount, just like a credit card.
However, a home equity line of credit can’t refinance your entire loan. Therefore, they’re only given to investors financing an owner-occupied house. There are also no limitations to what you can do with the cash.
A Bridge Loan
Bridge loans are a temporary fix, and flip loans are often used to help investors between one real estate transaction and the other.
Most investors use bridge loans to purchase a new fix and flip home before selling the already fixed property on their hands. A bridge loan helps an investor buy a new property without a contingency plan to sell the old home.
The loan can also be used to pay the investor’s hard money loan that they used to finance the flip. This reduces the pressure as they find a more permanent financing solution for the loan.
Tips for Applying for a Fix and Flip Loan
Thanks to advancements in the industry, there is much-needed flexibility for borrowers looking for fix and flip loans. However, this does not mean that a lender will give you money without doing some due diligence first. Every lender wants to make sure that their borrowers have the ability to repay the loan and the interest rate.
But some tips will help your loan application process go smoothly. These tips include:
Use a Local Lender
It’s advisable to find a reputable and experienced lender in your local area. These lenders are the best business partners to help you succeed in your fix and flip project.
That’s because they understand the local market and are knowledgeable about the real estate trends in the area. A local lender may also be well connected and know reputable contractors to help you complete your project.
Find a Reputable Lender
Ensure you work with a reliable lending company, and have a great portfolio. Talk to other real estate investors in your line of work and ask for their recommendations. Find out which lenders are most preferred by other flippers.
A lender will be your long-term financial partner. Therefore, you need to work with a lender who can demonstrate their success, especially in financing and identifying successful flip projects.
Calculate the Cost
It’s essential to do your research before looking for a fix and flip lender. You should know how much money you need to help you complete the project. There are numerous costs that go into flipping a home.
Some of these costs include renovation expenses, purchase price, marketing, and carrying costs. You will also need to cushion your budget. Knowing how much you need and calculating everything in detail will give your lender the impression that you know exactly what you need to succeed.
Create a Schedule for the Project
Before starting the project, ensure you have a detailed schedule and timeline of when things should be done.
Write down everything that requires to be done on the house you bought and detail every stage of the project until completion. Write down how much time it will take to complete the projects and how much it will cost you.
Now You Understand Fix and Flip Loans for Beginners
Are you considering joining the real estate industry as an investor? House flipping is one of the most lucrative real estate investments today. However, before joining the industry, it’s advisable to consider your financing options and the project’s total cost.
One of the most significant limitations for most beginners is financing. While there are fix and flip loans for beginners, finding the right loan for you can be quite challenging. But with Orchard Funding, we make it easier for real estate investors to get loans to finance their home flipping projects.
Contact us today if you are looking for an excellent home flipping loan to help you get started. We are here to help you make your dreams come true.