Fixing and flipping a home seems so easy as seen on TV. But in order to make a profit out of a home you bought, rehabilitated and resold at a higher price, you need money for it. If you’re new to this business, you’ll find it a challenge to get financing for your first home to fix and flip. Still, there are options available from traditional mortgage loans to the usual go-to lenders for house flipping ventures.
Traditional Mortgage Financing for House Flipping?
Homes subject to flipping are considered investment properties. And traditional home loans can finance this type of property. But here’s the deal: the house has to be in good condition and move-in ready per government-backed mortgages like FHA, VA, and USDA. GSEs Fannie Mae and Freddie Mac have their own property guidelines to be purchased using conventional loans.
Apparently, traditional mortgage lenders look into the current market value of the property when making loans and not on the after-repair value (ARV) takes into account the improvements made to the property.
Lenders are particular with the borrower’s credentials. You must meet credit, income and experience in flipping, among a myriad of factors to help establish your ability to repay a loan. Having done to two or three successful projects in the past can boost your application.
Traditional mortgages can work such as FHA 203k loans that allow you to buy a home and pay for its repairs. But the process can take longer than hard money loans and not ideal for properties with fast-moving deadlines like short sales.
Extracting Equity for Flipping Matters
If a first-lien mortgage on top of your existing mortgage is out of the question, capitalizing on your home’s equity may be plausible. Examples are home equity line of credit and a cash-out refinance loan. Substantial equity is required for each type of transaction with an equity of at least 15% to 30%.
Flip Through Your Other Options
Hard money loans from such lenders are considered are standard in house flipping projects. Compared with traditional mortgages, they are relatively easier to obtain because of lower qualification standards and faster processing where approval can be given in two weeks or less.
If you need money right away to cover the down payment or the actual purchase post-repairs, hard money loans are your bet. Be wary that hard money loans come in higher interest rates and have shorter repayment terms. Fees and charges on such loans are also higher compared to traditional home loans.
These hard money loans can come from lenders based online and offline. There are also private individuals who are willing to lend you money. Families and friends and crowd funders can fit into that description, too.