If you are interested in flipping in real estate, it is likely that you will have come across a major obstacle: finding fix and flip funding. In order to buy a house and do it up, you will need to have some funds. Luckily, lenders understand that such an investment is a great way to see a good return because you will likely be able to sell it for a profit once the property has been fixed. On the other hand, property investing has its risks, so these lenders do have stringent qualification requirements in place, and they have varying terms and conditions. So which options are available, and where can you find them?
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The Four Key Fix and Flip Loan Options Available
Real estate is expensive to buy and expensive to do up. Hence, although fixing and flipping is a great way to earn quickly, a lot of money is required. Money is needed to purchase the property itself, for the repairs and the contractors completing them, for the broker and listing fees, and simply for owning a property until it is sold again. Unless you already have a lot of capital yourself, you will have to consider one of the following four options to find loans.
1. Private Money or Hard Money Loan
Generally speaking, this option is best for those who need money very quickly. One advantage is that it can be accessed by both inexperience and experienced flippers. These loans are usually provided by hard money lenders. You can find them in person or online. Traditionally, they are easiest to find offline through personal and professional relationships in the industry, such as mortgage brokers, contractors, and realtors, who will refer you to the lender.
Naturally, it is now possible to find private money lenders online. These lenders tend to make a decision much faster than their offline counterparts, mainly because their sole business is that of hard money lending. In fact, it is possible to receive an approval within 24 hours, and funds within two weeks.
Terms and conditions for these loans vary. However, interest rates usually start from 7%. It is common to see interest-only loans, and for lenders to not impose early repayment fees.
2. Cash Out Refinance
This type of loan is best for those who already have a primary residence or investment property in which there is a significant amount of equity. These options are offered by mortgage lenders who are Fannie Mae approved. These include both local and national lenders. Finding Fannie Mae approved lenders is quite easy online, as they are all clearly listed.
3. Home Equity Lines of Credit
This option is best for those who have not yet identified a project, and who already have an owner-occupied home as well. A home equity line of credit is generally available through national mortgage lenders and national banks. This includes Wells Fargo, Chase Bank, and Quicken Loans, for instance. HELOCs (home equity lines of credit) are also available through crowdfunding platforms. SoFi and LendingTree are two good examples of this. Again, terms and conditions vary significantly, but most offer interest only repayments at variable rates.
4. Online Mortgages and Permanent Bank Loans
These options are best for investors who intend to buy and hold, rather than fix and flip in a very short period of time. Finding long term mortgage providers is easy. Simply navigate to the U.S. Department of Housing and Urban Development website to find a full list of all FHA and Fannie Mae approved lenders. The list is incredibly long, so you should be able to find one that meets your particular needs.
The problem with a permanent bank loan or online mortgage, however, is that they are lengthy contracts and the cost of early repayment is quite high. Hence, if you intend to fix and flip within a short period of time, it may not be suitable for you. On the other hand, you intend to hold the property for some time, perhaps keeping it as an income property and become a landlord, then you may just find that these mortgages are the most affordable and suitable for you.
Choosing from Among the Options
As you can see, there are four main options available for those who want to find a fix and flip loan. Which of the four is best depends entirely on your personal needs and requirements. Whether you have already identified a property or not is a key consideration as well. If you have, then the condition and type of the property will go a long way towards deciding which loan to apply for, as will your personal financial situation and your experience in the world of real estate investment. Real estate investing is seen as very lucrative, but getting your foot in the door can be very difficult. Lenders want to see that you will be able to flip for a profit, and this takes some experience.