How Do Fix and Flip Loans Work?
If possible, it’s usually best to get a loan that’s customized to your business needs. That way, you get repayment terms, funding amounts, and monthly payments that adapt well to your way of doing business. Fix and flip loans can deliver that kind of custom financing flair for real estate businesses and house flippers. They provide many benefits because they’re designed specifically for real estate transactions. How do they work?
The Basics of Fix and Flip Loans
First, it’s helpful to contrast the possibilities of fix and flip financing with traditional mortgages so you can see the main differences. With a conventional loan, you get a large amount of capital to purchase a piece of real estate. To qualify, you need excellent credit, a sizable down payment, and a specific type of property, one that doesn’t require many improvements to be saleable.
Fix and flip financing also provides significant capital, but approval is based on the value of the real estate instead of your credit score. This real estate acts as collateral for the loan. The loan covers most of the purchase price, leaving about 25% of the price for the down payment.
A big difference is that fix and flip loans also cover remodeling and improvement costs. That’s a huge benefit for house flippers, who often depend on those improvements to add resale value and make the property more attractive to buyers.
Types of Fix and Flip Loans
There are different types of real estate financing, each with certain advantages. Hard money loans, home equity loans, bridge loans, lines of credit, and cash-out refinancing programs can all be helpful. The most important factor is choosing a lender you can trust. That way, you can qualify for excellent rates regardless of which type of fix and flip loan works best for your current project.
You also want to think about the approximate flow of capital that your project requires. Do you need a large infusion of funds at the beginning? Do you anticipate a lot of improvements needed throughout the project? Depending on the answers, a fix and flip line of credit may be the best choice.
Another consideration is how much total capital you require. Different options have larger spending caps. Last but not least, think about speed. If you have to close on a hot property quickly, hard money loans are hard to beat. No matter what you choose, fix and flip loans blow conventional mortgages out of the water when it comes to flexibility and control over the funds and your project.