Analysis done by researchers from Attom Data found that house flippers renovated more than 200,000 homes in 2018, with an average gross profit of $65,000 per property. That is a lot of houses and a lot of money, too. However, despite the popularity of house flipping, the biggest barrier to entry and success in this space is cash.
Without enough money, you cannot purchase the home, pay for renovations, or find a buyer for the property when the time comes to sell. Fortunately, if you are wondering how to get funding for house flipping, you actually have multiple options that allow you to quickly purchase your property and get your project underway.
No matter whether you are a beginner or experienced house flipper, you can choose from a variety of fix and flip small business loan options to add to your portfolio and grow your business as a real estate investor.
In this guide, we shall discuss six of the best fix and flip loans, as well as how to choose the right one for you and what to do before approaching a lender for fix and flip financing. Additionally, we have included information from actual house flippers who have successfully gotten funding for flipping houses to grow their own real estate businesses.
Fix and flip loans are used by short-term real estate investors for buying and renovating of property before flipping it for a profit. This type of funding for flipping houses allow and provides investors fast closings for properties in any condition. Popular type of fix and flip loans are hard money loans.
LendingHome provides fix and flip loans to investors with competitive rates for prime borrowers. You can get pre-qualified online in minutes, see your exact rates and receive funding in as little as 15 days. Additionally, there is no prepayment penalty for early repayment.
There are six ways to get fix and flip loans for funding flipping houses in the U.S. These are explained below:
Ideal for: Experienced investors with 2+ flips or novice investors working with a contractor.
A hard money loan is a short-term business loan which are secured by real estate and used by fix and flip investors to purchase or buy and renovate a property. Investors will use hard money loans to purchase, renovate and sell a property within one year. These loans are ideal for funding a fix and flip project since they finance properties in poor condition.
Hard money loans, also referred to as rehab loans, have lower qualifications for approval, thus, helping fix and flip investors receive approval and funding in as little as 15 days. Hard money lenders are more focused on the property and its potential value than the borrower’s background.
LendingHome is famously known as national hard money lender that assists experienced and inexperienced investors secure funding for flipping. Rates are competitive for prime borrowers and pre-qualification takes minutes. You can fill out their brief online application to find your rate and pre-qualify in as quickly as three minutes.
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These house-flipping loans allow experienced investors manage their own renovations while allowing novice flippers to use a licensed contractor. Irrespective of its expertise, the funding of a hard money loan can be processed in as little as 15 days.
Hard money rehab loans appears ideal for the following investors:
Hard money loans generally have lower approval qualifications than conforming loans, helping fix and flip investors receive approval and funding in as little as 15 days. Hard money loan rates are typically higher than conforming loan rates, starting at 7.5%, and usually have shorter loan terms of one to three years.
Hard money loans have high interest rates, but they offer shorter terms and can be used to finance renovations. Lender fees are taken directly out of the loan and closing costs are either paid out of pocket or taken directly out of the loan. When you consider the cost and fees along with the rates, it is obvious that hard money loans are expensive.
With no prepayment penalty, you can reduce the overall financing costs by paying the loan back early. Monthly interest-only payments are made during the loan and the principal is repaid at the end of the loan term. Hard money loans generally finance 90% of a property’s loan-to-value (LTV) and 75% of a property’s after repair value (ARV).
While the loan is costly, you are not paying interest on a hard money loan for very long since you can generally flip a home in less than six months. To help speed up the process, hard money lenders such as LendingHome offer pre-qualification in as little as three minutes and funding within 15 days.
Hard money loans often carry these minimum qualifications:
Hard money loans offer easier qualifications compared to other options. However, a credit score of 640 or above is preferred. Borrowers with better business credit scores and a longer history of successful fix and flip projects are considered safer and likely qualify for lower rates and fees as well as higher borrowing limits.
Hard money loans are issued by hard money lenders and these lenders can either be found online or in person. Traditional hard money lenders are found offline through industry relationships. Online hard money lenders, on the other hand, conduct their business completely over the internet. With online lenders, pre-qualification takes less than a day and funding can be received in as little as 15 days.
LendingHome is an online hard money lender that offers competitive rates for prime borrowers, interest-only monthly payments and no prepayment penalties. They can fund loans in as little as 15 days, and pre-qualification takes just a few minutes.
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Ideal for: Investors with existing investment property and at least 30% to 40% equity.
A fix and flip cash-out refinance is a strong planning where fix and flip investors refinance an existing property to finance the purchase of a new investment property. A cash-out refinance helps fix and flip investors extract equity from an existing property by issuing a new loan and paying off the existing mortgage. The new loan issued on a cash-out refinance is considered a “first lien”.
This means that any existing liens (such as the original mortgage) must be paid first before being able to use the balance of equity. The difference between the amount of the new loan and the amount of the old mortgage is the cash that fix and flip investors can use to finance other investments.
No restrictions on how fix and flip investors spend the cash received from a cash out refinance. Fix and flip investors can use a cash out refinance, also known as a “cash-out refi”, on an owner-occupied home as well as a non-owner-occupied investment property (up to four units).
Visio Lending offers real estate investors a way to refinance an existing property or portfolio of properties. Their “cash-out refi” offers range from 24-month bridge loans to 30-year rental loans with competitive rates for prime borrowers. You can pre-qualify online in just a few minutes.
Cash-out refinances are used by real estate investors who already have an existing property with 30% to 40% equity and want to compete with all cash home buyers without turning to hard money. A “cash-out refi” can, however, only finance up to 75% of the existing property’s loan-to-value (LTV) ratio.
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A “cash-out refi” is perfect for portfolio investors who own at least one existing property with enough equity to execute a cash out refinance. These portfolio investors use a “cash-out refi” as a down payment on a blanket mortgage or a portfolio loan. Blanket mortgages can finance four or more properties under a single loan and are perfect for investors with multiple houses.
Cash-out refinancing provides funding for flipping homes and offers competitive rates and longer loan terms ranging from 15 to 30 years. Fix and flip cash-out refinance qualifications are generally more stringent than hard money loan qualifications because the lender wants to make sure the borrower can afford a new, higher loan amount.
The interest rates on a “cash-out refi” are usually lower than a traditional mortgage. This is because the borrower already has a track record of good payments. However, since a cash-out refinance is more complicated than a regular bank loan, lenders charge higher fees.
The rates and terms on a cash-out refinance are as follows:
Lenders offer cash-out refinances with 80% LTV on a one-unit property and 70% LTV on two- to four-unit properties. This means you will need 30% to 40% equity in an existing property. You might have to use a cash-out refinance for a down payment and then use a hard money loan to cover the remainder. With 40% equity, you can only access to 15% of your available equity to draw from.
Since a cash out refinance is a first lien, borrowers are required to cover closing costs between 2% and 5% of the existing property’s fair market value (FMV). Closing costs are either drawn directly from the loan or paid out of pocket by the borrower. Once the loan is issued, the lump sum amount is used to pay off the existing loan and the remainder is wired directly to a borrower’s bank account.
The qualifications for flip and flip cash-out refinance are more stringent than with other types of fix and flip loans. This is because a cash out refinance is usually issued by a traditional bank or mortgage lender rather than an online or hard money lender.
Following are the cash-out refinance qualifications that fix and flip investors must think
All fix and flip investors, whether they are refinancing an investment property or their primary home, should have at least 30% to 40% equity in the existing property.
Where to Find a Fix and Flip Cash-Out Refinance
You can find a cash-out refinance at any Fannie Mae-approved mortgage lender. They can also be issued by lenders specifically catering to real estate investors. Lenders that focus on investors tend to have more flexibility and their familiarity with the investing world allows them to get their clients funded more quickly than traditional mortgage companies.
Visio Lending offers real estate investors cash-out refinance options that range from 24-month bridge loans to portfolio loans to 30-year rental loans. Rates are competitive for prime borrowers. You can get pre-qualified online in just a few minutes.
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Ideal for: Investors with primary residences and 30%+ in equity.
A home equity line of credit (HELOC) can be another source of fix and flip funding for investors. The HELOC works like a credit card. Fix and flip investors are issued a line of credit based on the value of their existing home and available equity, and can draw from that credit line over the HELOC term. Just like a credit card, interest rates are only charged on the amount borrowed until it is repaid.
Unlike a cash-out refinance, a home equity line of credit (HELOC) can be both a first or second lien, meaning that it can be taken out in addition to an existing mortgage. A HELOC can only be issued on an owner-occupied primary residence. There are no restrictions on what a fix and flip investor does with the capital, but the HELOC is taken out on a primary residence, not an investment property.
If you are shopping for a home equity line of credit, you can reach out to one lender at a time hoping you find a good deal. Or, you can also visit an online marketplace, like LendingTree and review offers from multiple lenders at once. Save time, shop smart and look for a HELOC that fits.
Home equity lines of credit (HELOCs) are only issued on an owner-occupied primary residence. HELOCs usually cannot be taken out on an investment property. Further, the combined loan-to-value ratio (CLTV) cannot exceed 85% of the home. Once a home equity line of credit (HELOC) is issued, fix and flip investors can use it to finance any investment purchase, such as funding flipping houses. Investors will then use the cash from a HELOC to purchase and renovate an investment using all cash or as a down payment on a hard money loan.
The real value in a HELOC is in its credit structure. Since it is not a loan, fix and flip investors who are approved for a home equity line of credit (HELOC) can take their time looking for an opportunity. Interest rate does not start accruing until an actual draw is made. HELOCs allow fix and flip investors to set a maximum budget and wait for the right opportunity, such as a foreclosure property.
A home equity line of credit (HELOC) offers competitive rates starting at 3.5% and are long term, from 25 to 30 years. The qualifications for this type of fix and flip funding tend to be standardised, a minimum FICO score of 640 is generally needed and the HELOC can only be used on an owner-occupied property.
The overall term of a HELOC is broken down into two phases. The first five to 10 years is known as the “draw period”, while the following 20 years is known as the “repayment period”. During the draw period, borrowers are free to borrow up to their maximum line of credit and pay interest-only monthly payments. During the repayment period, fix and flip investors don’t borrow and start repay the principal.
A home equity line of credit (HELOC) has rates and terms, which are as follows:
The maximum loan amount is equal to 85% of a property’s combined LTV, which means the first mortgage and second HELOC combined cannot exceed 85% of a property’s current fair market value. Since a HELOC is considered a second mortgage, borrowers are usually not required to pay closing costs.
A home equity line of credit (HELOC) has standard qualifications regardless of where you obtain it. A borrower needs to meet the minimum FICO score and debt-to-income ratio. The borrower will also need to show equity in their existing property.
Borrowers should expect to meet the following qualifications prior to applying for a HELOC:
HELOCs are only allowed on an owner-occupied primary residence. However, lenders are not concerned with what an investor does with the money after funds are distributed.
Investing in real estate requires having access to the right capital. For investors with equity in an existing primary residence, a HELOC can be a great choice. Home equity lines of credit (HELOC) are available through most national banks and mortgage lenders.
If you are shopping for a home equity line of credit, you can reach out to one lender at a time or visit an online marketplace like LendingTree and review offers from multiple lenders at once. Save time, shop smart and find a HELOC that fits.
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Ideal for: Investors with equity in rentals who want cash for purchases.
An investment property line of credit (LOC) is a line of credit similar to a home equity line of credit (HELOC), only the equity is from investment properties.
It works like a credit card where you only pay interest on the money that you use. This LOC is for short-term cash needs and can be used for both purchases and renovations of fix and flips. An investment property LOC can only be drawn from non-owner-occupied properties.
However, it is possible to get either a single asset investment property LOC or a portfolio investment property line of credit. While you will need to outline how you will use the LOC in the application, you can usually use it for whatever you want once it is funded.
CoreVest provides an investment property line of credit starting at $1 million for single assets or portfolios. Their lines of credit are up to 80% of a property’s cost with terms between 18 and 24 months. The line of credit offers experienced flippers with imporatant equity in an existing portfolio a high degree of flexibility and speed.
Investment property lines of credit are right for fix and flip investors who want a short-term loan in order to purchase or rehab a property and then flip it and pay off the line of credit. Long-term investors with substantial equity in their property and a high credit score who may be short on cash may also benefit from an investment property LOC.
An investment property line of credit (LOC) is right for the following investors:
An investment property line of credit provides fix and flip funding to investors. These products’ rates are generally higher than HELOC rates because the loan is on an investment property and not a primary residence and the bank looks at this as riskier. Terms are typically shorter and qualifications are based on the amount of equity in the property plus the borrower’s financial history, including the credit score.
The rates for an investment property line of credit are based on the borrower’s credit score and credit history as well as on the investment property itself. These terms are set by the bank offering the line of credit. The rates and terms are different from single asset to portfolio LOCs.
The single asset investment property line of credit rates and terms include:
There are sometimes annual service fees of around $75. Minimum lines of credit on single assets are as low as $25,000, while minimum lines of credit on a portfolio of properties are approximately $1 million. Investment property lines of credit are usually capped at 75% LTV or at 90% of cost.
An investment property line of credit for a single asset has certain qualifications that a borrower and their property must meet in order to be approved. A portfolio LOC has stricter qualifications and looks closely at the borrower’s overall financial standing. Generally, all LOCs require a certain amount of equity in the property.
Typical investment property lines of credit qualifications include:
Where to Find a Fix and Flip Investment Property Line of Credit
Investors can find a fix and flip investment property line of credit at their bank, credit union, or with an online lender. A portfolio LOC is a speciality loan product and is not usually offered by banks. Instead, only certain financial institutions offer investment property lines of credit for a portfolio.
CoreVest provides investment property LOCs for one or more assets. Their lines of credit start at $1,000,000 with competitive interest rates for prime borrowers. You can apply online and will be assigned a personal representative to work with you.
Ideal for: Investors who want to close quickly and plan on getting other financing later.
A fix and flip bridge loan is a short-term used to cover the time between two real estate transactions. It is often used to purchase one property before selling another property. It lets you to purchase a fix and flip property without having a contingency to sell your other property first. Unlike a hard money loan, you cannot finance rehabs with fix and flip bridge loans.
A fix and flip bridge loan can be right for a real estate investor who finds a great deal on a property that will no longer be available by the time they have the cash or financing in place to purchase it. Investors often use a bridge loan to purchase a property before refinancing it or flipping the property to pay off the bridge loan.
A fix and flip bridge loan offers investors funding for flipping homes with higher rates starting at over 6% and terms of a few weeks to a year. Bridge loans generally have different qualifications based on the lender and these vary because it is a speciality loan product. Lenders base their approval decision on the strength of the investment and the borrower’s overall financial picture.
Fix and flip bridge loans are short-term, temporary loan products that provide interim or quick financing for a certain window of time. They are specialty loan products used to bridge the gap when selling one property and buying another and guidelines therefore vary widely. Interest rates are generally lower than hard money loans but higher than permanent bank loans.
The qualifications for a bridge loan vary due to being a speciality loan product. However, lenders generally look less at the borrower’s credit and financial history and more at the strength and profitability of the investment.
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Fix and flip bridge loans are a speciality loan product and are not as popular as other private loans, so they are not offered at all banks or credit unions. Instead, look for private lenders who offer non-traditional loan programs. These programs are sometimes referred to as cross-collateral loans or blanket loans by lenders, so be sure to ask your lender if they offer any alternative bridge products.
RCN Capital is reputed provider of fix and flip bridge loans . It is a national, online hard money lender that offers competitive rates to prime borrowers. You can receive a bridge loan up to $2.5 million or more in as quickly as 10 days. Apply online in minutes.
Ideal for: Buy-and-hold investors who want to flip over 5+ years.
Permanent bank loans and online mortgages are characterized by 15- to 30-year terms and are used to purchase long-term, owner-occupied primary residences or non-owner-occupied investment properties in good condition. That’s why, permanent bank loans and online mortgages are not suitable for fix and flip investors purchasing distressed properties.
However, there are a few permanent bank loans and online mortgages that benefit longer-term rehabbed. The FHA 203(k) loan, for example, allows for the owner-occupied purchase and renovations of a primary residence.
The Fannie Mae HomeStyle loan, in addition to financing the owner-occupied purchase and renovations of a primary residence, also finances the purchase and renovations of a one-unit investment property.
Who Fix and Flip Permanent Bank Loan and Online Mortgages Are Right For
Permanent bank loans and online mortgages are best used by long-term, buy-and-hold investors. However, fix and flippers might find them beneficial for a property that does not need that much work or a property that they want to rehab, rent out and then flip later on.
Further, most of these permanent bank loans and online mortgages cannot finance properties in poor condition, with the exception of Homestyle Renovation Loans and 203(k) loans. Still, these are not really right for short-term fix and flippers.
Permanent loans and online mortgages are a conservative type of funding for flipping houses over a long period of time. They usually offer low rates starting at 4.6% and terms from 15 to 30 years. Their qualifications are based on the property and the borrower and are stricter than hard money loan qualifications.
A permanent investment property loan and online mortgage generally have a term of 15 to 30 years. The approval time and time to receive funding are usually 30 to 45 days and the lender fees and interest rates are lower than some of the other fix and flip loans.
Permanent bank loans and online mortgages often have the following rates and terms:
You can finance between 80% and 96.5% of a property’s purchase price, but the specific amount of financing depends on whether or not the lender is FHA-approved. FHA loans often require 3.5% as a down payment. Fannie Mae loans require up to 20% as a down payment. Permanent bank loans and online mortgages can only finance properties in good condition.
The qualifications for long-term permanent bank loans and online mortgages are standard in many cases due to being issued by FHA or Fannie Mae-approved lenders, but not always. They can also be non-conforming portfolio loans.
To verify income, lenders ask for proof of income or recent pay stubs, a list of debts, as well as two to six months’ of bank statements. Further, permanent bank loans and online mortgages can only finance a property in good condition, limiting the effectiveness of the fix and flip loan.
There are many great long-term permanent mortgage providers. In fact, the U.S. Department of Housing has a list of both FHA-approved lenders and Fannie Mae-approved lenders. LendingTree is another option – it is an online loan marketplace with one of the largest lender networks, so you can compare lender rates.
However, fix and flippers should consider LendingHome. They are a national hard money lender that offers short-term rehab loans with interest-only payments. Rates are competitive for prime borrowers and pre-qualification takes as little as three minutes.
Here, we shall briefly examine some additional options of financing for flipping houses. These can be used in fix and flip loans, or as an alternative to them. Things like cryptocurrency can be a part of the future of fix and flip funding.
Some additional methods of financing for flipping houses include:
This is a retirement incentive plan for self-employed individuals or small business owners without any full-time employees other than a spouse. You can invest in real estate with similar tax advantages to normal plans.
A business credit card gives you a revolving line of credit based on your credit score and income. It typically has a high interest rate, and gives you 30 days to make a minimum payment or pay off the balance. Fix and flippers can use it to buy building supplies and appliances.
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This alternative funding source pools investors’ money together to fund projects or portfolios of projects. You can invest in the debt or equity and receive a proportionate stake in the project. Investors would invest in crowd-funding as a way to get involved with real estate without being hands-on.
You can use multiple sources of financing for flipping houses together. For example, a home improvement store credit card can be used with a small loan to fund the items needed to renovate a property, such as building materials and appliances. In some cases, you have to think out of the box creatively to get fix and flip projects financed.
Investors aware of the fact that in order to make money flipping houses, they need the best fix and flip funding. The best option is generally a hard money loan because it can close fast, offers lenient qualifications and funds the acquisition and rehab of the fix and flip project.
For fix and flippers, we suggest checking out LendingHome. They are a hard money lender that issues rehab loans up to 75% of a property’s after repair value (ARV). Rates are competitive for prime borrowers and monthly payments are interest-only. Pre-qualification takes a few minutes and funding can happen in as quickly as 15 days.
