Fix and Flip Loans

The housing market can be turbulent, and serious real estate investors need to be able to move fast. Some of the deals with the biggest potential require immediate loans and down payments. Still, other houses can turn into gold mines because of their age or condition — but only if you have the capital on hand to power through a house-flipping project.

Fix and flip loans are a popular tool for real estate investors who need the flexibility to strike deals quickly and invest in fixer-uppers.

What Are House-Flipping Loans?

There are specialized loans for almost every purpose, from personal loans to business cash flow loans and everything in between. These loans are so specific because lenders have to evaluate the risks associated with each endeavor, and house flipping is no exception. Traditional banks and lenders see house-flipping loans as high-risk loans because of the extra costs, the business nature, and the unpredictability of the housing market.

To address these risks, commercial lenders offer specific house-flipping, or “fix and flip,” loans that are short-term bridge loans specifically intended to cover the purchase and renovation of a property that will be resold on the market shortly after repairs are complete. Private investors and hard money lenders are the primary sources for these short-term loans.

House-flipping loan programs don’t rely on verified income or other standard loan factors, so they are more available to people entering the house-flipping market. Instead, lenders evaluate the property, the likelihood of a successful renovation, and the comparative advantages of properties in the surrounding neighborhood.

How Are House-Flipping Loans Different From Mortgages and Other Types of Loans?

House flipping loans are short-term loans, which already sets them apart from traditional mortgages. Some of the key differences between these two house-buying mechanisms are:

• Term length: Traditional mortgage loans have 15-year or 30-year terms, whereas house-flipping loans are short-term loans that can have adjusted terms based on the individual lender. Whereas many mortgages have penalties for early repayment, house-flipping loans do not.
• Interest rates: Conventional mortgage loans generally have low interest rates. Market forces, the interest rate, and other factors (such as the term length and whether the loan is fixed or variable) impact the final interest percentage. House-flipping loans may have interest rates double that of conventional mortgages. However, most fix and flip loan borrowers pay off the principal quickly enough to avoid paying too much interest.
• Closing speed: Traditional lenders and banks have a lengthy system of approvals, paperwork, and closing processes. The process often takes 30 days or even longer. House-flipping loans can be closed in under seven days in most circumstances.
• Approval factors: Mortgage lenders consider individuals’ credit scores, income and employment histories, and other personal factors when deliberating on both approving a loan and establishing the particulars of the loan. House-flipping lenders, on the other hand, focus more on evaluating the property and the borrower’s ability to quickly improve and sell the property.

House-flipping loans even differ from seemingly similar loans, like home improvement loans or home equity lines of credit intended for renovations. In both of those situations, the loan is based on the borrower’s individual history of paying back loans reliably. House-flipping loans are far more like short-term investments by one entity (the lender) to another business entity (the house flipper). While home improvement loans may have short terms like house-flipping loans, that’s where the similarities end.

Advantages of House-Flip Loans

House-flip loans are designed to be exactly what house flippers need to arrange profitable deals and move quickly in favorable real estate situations. Some of the advantages of applying for house-flip loans over other short-term business loans include the following:

• Comprehensiveness: House-flipping loans encompass the purchase price of the investment property and enough credit for anticipated repairs and related expenses. This is a far more streamlined arrangement than having to take out separate loans for the purchase of the property and for improvement projects.
• Speediness: The loan process can be completed in under a week, especially if borrowers have all the documentation ready and know what they need to close on the property. This helps house flippers quickly entice sellers with an offer and start remodeling projects quickly instead of having to wait through lengthy approval periods and face competition from traditional buyers.
• Cash flow: Real estate investors who are flipping multiple properties over the course of a year or who manage several different types of real estate investing rely on ample cash flow to make repairs, pay property management companies, and more. Even house flippers with potential access to their own funds to make a cash offer on a house or pay for improvements themselves need that cash to remain liquid for other projects. A house-flipping loan allows established or profitable house-flipping entities to acquire new properties without tying down their own assets.

How to Get the Right House-Flipping Loan for Your Property

The key to getting a good house-flipping loan with favorable terms is to work with private investors or hard money lenders that specialize in house flipping and other business ventures. They will have the processes in place to allow a speedy loan review and closing, and they know that house flippers require funds far above the purchase price of the property (which mortgage companies and traditional lenders may hesitate on).

House flippers should look for experienced money lenders that are either established in the area of the property or have a strong regional or national network. Once you have a list of potential lenders, you can compare the interest rates and loan terms each one offers, glance through their online reviews, and apply to your preferred choice.

Titan Funding specializes in bringing together borrowers and investors. When you can’t secure a house-flipping loan for your fixer-upper investment property through traditional lenders such as banks or mortgage companies, we’re here to help evaluate your needs and property to find a solution. Contact us today to learn more about our lending services.