Fix-Flip Mortgage Loans of July 2024

Secure fix-flip mortgage loans with competitive rates and flexible terms online from one of the companies vetted by our experts. As of 24.07.2024, you have 1 options available. Boost your chances of approval by completing an application with a free credit score check.
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Updated:
23.06.2024
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A fix-flip loan is a form of short-term financing tailored specifically for real estate investors who aim to purchase, renovate, and quickly resell properties for profit. Unlike traditional home loans designed for long-term residences, fix-flip loans are structured to cover the purchase price and renovation costs of investment properties. These loans typically have a duration of 12 to 18 months, allowing investors to complete the necessary upgrades and sell the property within a short period. The loan amount often depends on the property's after-repair value (ARV), which is the estimated value of the property once renovations are completed.

Fix-flip loans are usually hard money loans provided by private investors or hard money lenders, rather than traditional financial institutions. This type of financing is characterized by higher interest rates, often between 8% and 12%, and more flexible terms compared to conventional loans. The approval process for fix-flip loans is typically faster, enabling real estate investors to quickly secure funds for purchasing and rehabilitating properties.

Features

  1. Short-Term Duration. Fix-flip loans typically have a short-term duration, usually ranging from 6 to 18 months. This timeframe aligns with the quick turnaround needed for purchasing, renovating, and reselling the property. The short-term nature helps investors focus on rapid project completion and timely resale to maximize profits.

  2. Higher Interest Rates. These loans come with higher interest rates compared to traditional mortgages, often between 8% and 12%. The elevated rates reflect the increased risk lenders take on, given the short-term and speculative nature of flipping houses.

  3. Flexible Terms. Fix-flip loans offer more flexible terms than conventional loans. Private investors or hard money lenders are not bound by the rigid structures of traditional financial institutions, allowing them to tailor loan agreements to suit the specific needs of the borrower and the project.

  4. Quick Approval Process. The approval process for fix-flip loans is generally much faster, sometimes within a few days. This speed is crucial for investors who need to act quickly to secure a good deal on a property, especially in competitive real estate markets.

  5. Funding Based on After-Repair Value (ARV). The loan amount for a fix-flip project is often determined by the property's after-repair value (ARV). This means lenders evaluate the expected value of the property post-renovation, allowing investors to borrow based on the potential value increase rather than the current market value.

  6. Use of Hard Money
    Fix-flip loans are commonly funded through hard money loans provided by private investors or hard money lenders. These loans are secured by the property itself, not the borrower’s credit, making them accessible to investors who may not qualify for traditional financing.

Pros and Cons

Pros

Fast Funding. Fix-flip loans offer quick access to capital, often within days. This speed is essential for real estate investors needing to secure properties quickly, especially in competitive markets or auctions.

Flexible Terms. These loans typically come with more flexible terms than conventional loans. Private investors or hard money lenders can tailor the loan agreements to fit the specific needs of the borrower and the project.

Interest-Only Payments. Some fix-flip loans allow for interest-only payments during the loan term. This reduces immediate cash outflows, freeing up funds to cover renovation costs and other expenses.

Cons

Potential for High Fees. Fix-flip loans can come with various fees, including origination fees, closing costs, and other charges that can add up and reduce the overall profitability of the project.

Risk of Overruns. If the renovation project takes longer than expected or costs more than anticipated, the high interest rates and short loan duration can become burdensome, potentially leading to financial difficulties.

Strict Collateral Requirements. These loans are collateral-based, meaning the property serves as security. If the project fails and the borrower defaults, the lender can seize the property, leading to a total loss of the investor’s initial investment and any improvements made.

How to Get a Fix-Flip Loan

Apply for a loan

  1. Research Loan Options. Familiarize yourself with different types of fix-flip financing options such as hard money loans, home equity loans, HELOCs, 401(k) loans, personal finance services, seller financing, and business lines of credit. Each type has its terms, interest rates, and requirements. Determine which loan type best suits your project’s needs. For example, hard money loans offer quick funding but come with higher interest rates, while HELOCs might offer lower rates but require substantial equity in an existing property.

  2. Find Potential Lenders. Identify hard money lenders or private investors in your area. These lenders are more likely to have a good understanding of the local real estate market and may offer more flexible terms. Explore online lending platforms and crowdfunding sites that specialize in fix-flip financing. Compare their offerings, interest rates, and terms.

  3. Apply for the Loan. Prepare and submit all necessary documents, including your detailed business plan, financial projections, proof of past successful flips (if any), credit reports, and any other documents required by the lender. Follow the lender’s application process meticulously. Be prepared to answer questions and provide additional information promptly.

  4. Close on Your Loan. Once approved, carefully review the loan terms, interest rates, repayment schedule, and any associated fees. Make sure you understand all aspects of the agreement before signing. Upon agreement, the lender will disburse the funds. In some cases, funds may be released in stages based on project milestones, known as construction draws.

  5. Execute the Flip Project. Use the loan funds to purchase the property and start renovations according to your planned schedule. Keep meticulous records of expenses and progress. Maintain regular communication with your lender, especially if you encounter unexpected issues or delays. Transparency can help in managing the lender-borrower relationship and possibly renegotiating terms if necessary.

  6. Sell the Property. Once renovations are complete, list the property for sale. Work with a real estate agent if necessary to ensure a swift and profitable sale. Use the proceeds from the property sale to repay the fix-flip loan, including any interest and fees. Ensure all debts are settled promptly to maintain good standing with your lender and avoid any legal issues.

Requirements

  1. Credit Score. The minimum credit score requirement typically ranges from 600 to 650. Higher scores can result in better terms and lower interest rates.

  2. Experience in Flipping. Preference for borrowers with previous successful flip projects. New flippers may need to provide more detailed plans and possibly partner with experienced flippers.

  3. Down Payment. Down payment requirements typically range from 10% to 20% of the purchase price. Higher down payments may be required for high-risk projects.

  4. Proof of Funds. Documentation of sufficient funds to cover the down payment, renovation costs, and carrying costs. Lenders may require bank statements or other proof of liquid assets.

  5. Property Information. Detailed information about the property, including purchase price, estimated repair costs, and projected ARV. A well-researched property analysis can strengthen the application.

  6. Legal Structure. Many lenders prefer borrowers to form an LLC or other business entity. This can protect personal assets and may be required by some lenders.

  7. Insurance. Proof of adequate property insurance covering the loan amount. Some lenders may require additional builder's risk insurance.

Conditions

  1. Loan-to-Value (LTV) Ratio. Typically ranges from 60% to 75% of the property's after-repair value (ARV). Some lenders might offer up to 90% of the purchase price.

  2. Interest Rates. Generally between 8% and 18%, depending on the lender and the borrower's experience. Rates can be higher for less experienced flippers.

  3. Loan Term. Short-term loans, typically 6 to 18 months. Extensions may be available but often come with additional fees.

  4. Repayment Structure. Interest-only payments during the term of the loan. Principal repayment is due at the end of the loan term, often upon the sale of the property.

  5. Fees and Closing Costs. Origination fees range from 1% to 5% of the loan amount. Other potential fees include application fees, processing fees, and prepayment penalties.

Ways to Get the Money

  1. Lump Sum Disbursement. The lender provides the entire loan amount upfront at the time of closing. Allows the borrower to immediately cover the purchase price and start renovations without delay. Higher risk for the lender as all funds are released at once, and potential for misuse by the borrower if not managed properly.

  2. Draw Schedule. Funds are disbursed in stages, based on the completion of predefined project milestones. Ensures that funds are used specifically for renovations, reducing the risk of misuse and ensuring progress is made on the project. Requires detailed planning and documentation, and may slow down the project if draws are delayed.

  3. Reimbursement Model. The borrower pays for expenses out-of-pocket and then submits receipts for reimbursement from the lender. Minimizes lender risk by ensuring that funds are only disbursed for actual expenses incurred. Requires the borrower to have enough cash flow to cover initial expenses, which can be challenging.

Best Places to Get a Fix-Flip Loan

Established in 2017, HouseMax Funding, headquartered in Austin, Texas, has swiftly expanded its hard money loan services across the United States, reaching urban and suburban areas alike. Providing borrowers with rapid rate quotes and a straightforward prequalification process, applicants can anticipate efficient service, complemented by weekday customer support accessible via phone and email.

Based in Austin, Texas, Easy Street Capital prides itself on offering prompt real estate financing solutions, with an impressive ability to review applications and furnish loan term sheets within a 24-hour timeframe. Focusing on blanket loans and short-term rental properties such as Airbnbs and VRBOs, Easy Street Capital caters to a diverse clientele.

Express Capital Financing (ECF), a nationwide hard money lender, distinguishes itself through its diverse financing options, encompassing hard money, bridge loans, fix and flip loans, and small-balance commercial loans. Highlighting competitive rates, terms, and fees, ECF prioritizes a streamlined borrowing experience with swift turnaround times and high customer satisfaction.

Established in 2010, RCN Capital offers a comprehensive suite of hard money financing solutions tailored for non-owner occupied residential and commercial properties, including purchase and refinance loans, renovation project financing, and bridge loans. Targeting real estate professionals, commercial contractors, developers, and small business owners, RCN Capital extends extensive support and resources, including collaborations with Tax Hive for business tax consulting services.

Things to Pay Attention To

  1. Property Valuation. Ensure a thorough and accurate valuation of the property’s current condition and its potential after-repair value (ARV). A precise valuation is crucial for determining the feasibility of the flip and securing appropriate financing.

  2. Market Analysis. Conduct a comprehensive analysis of the local real estate market, including recent sales, current trends, and future outlook. Understanding the market ensures that you’re investing in a profitable area and can sell the property quickly.

  3. Loan Terms. Carefully review the terms of the fix and flip loan, including interest rates, repayment schedules, and fees. Ensures that you fully understand the financial obligations and can plan accordingly to avoid default.

  4. Lender’s Reputation. Research and choose a reputable lender with experience in fix and flip projects. A reliable lender can provide valuable support and flexibility, increasing the chances of a successful flip.

How to Repay a Fix-Flip Loan?

  1. Plan for the Balloon Payment. Understand the total amount due at the end of the loan term, typically including the principal and any remaining interest. Plan how you will gather the funds for the balloon payment, which could be through the sale of the flipped property or other financing sources.

  2. Prepare for Sale. List the property for sale as soon as renovations are complete, using professional photos and staging if necessary to attract buyers. Price the property based on a thorough market analysis to ensure a quick sale without compromising profitability.

  3. Complete the Sale. Be prepared to negotiate with potential buyers and accept a reasonable offer that allows you to cover the loan repayment and generate profit. Work with a real estate agent and attorney to expedite the closing process, ensuring all legal and financial obligations are met.

  4. Repay the Loan. Use the proceeds from the property sale to pay off the fix-flip loan, prioritizing this over other expenses. Make the balloon payment or any remaining balance due on the loan to fully repay your lender.

Reasons for Getting Rejected for a Fix-Flip Loan

  1. Poor Credit Score. Lenders often require a minimum credit score for fix-flip loans. A low credit score indicates a higher risk to lenders, leading to potential rejection. Improve your credit score by paying bills on time, reducing debt, and correcting any errors on your credit report.

  2. Insufficient Experience. Lenders may prefer borrowers with a track record of successful fix-flip projects. Lack of experience in real estate investing or house flipping can result in rejection. Gain experience by partnering with seasoned investors, taking real estate courses, or starting with smaller projects to build a portfolio.

  3. Inadequate Documentation. Incomplete or inaccurate documentation, such as missing financial statements, renovation plans, or property appraisals, can lead to rejection. Ensure all required documents are prepared accurately and provide comprehensive information to support your loan application.

  4. High Debt-to-Income Ratio. Lenders assess your debt-to-income ratio to determine your ability to repay the loan. A high ratio indicates a higher risk of default and may result in rejection. Lower your debt-to-income ratio by paying off existing debts or increasing your income through additional sources.

Alternatives

  1. Home Equity Line of Credit (HELOC). A HELOC allows homeowners to borrow against the equity in their property, providing flexibility to fund renovation projects. Lower interest rates compared to hard money loans, revolving credit line for ongoing expenses, and potential tax advantages. Requires sufficient equity in your primary residence, may have variable interest rates, and could put your home at risk if you default.

  2. Personal Line of Credit. Similar to a HELOC, a personal line of credit offers revolving credit with a predetermined limit, providing flexibility for financing fix-flip projects. Unsecured financing option, competitive interest rates based on creditworthiness, and convenient access to funds as needed. Approval based on credit score and financial history, may have higher interest rates than secured loans, and limited availability for substantial credit limits.

  3. Business Line of Credit. Designed for real estate investors and small business owners, a business line of credit offers access to funds for various business expenses, including property renovations. Flexibility to borrow funds as needed, competitive interest rates, and potential tax benefits for business expenses. Typically requires a business entity (LLC or corporation), may require collateral or personal guarantee, and approval based on business financials and creditworthiness.

  4. Cash-Out Refinance. With a cash-out refinance, homeowners can refinance their mortgage for a higher amount than their current loan balance and receive the difference in cash. Access to equity in your property, potentially lower interest rates than alternative credit products, and ability to consolidate debt. Requires sufficient equity in your property, may reset the loan term, and increase total interest paid, and closing costs associated with refinancing.

Editorial Opinion

Fix-flip loans offer real estate investors a valuable tool for financing property acquisitions and renovations, facilitating opportunities to generate income through property flipping. While these loans provide flexibility and fast access to capital, they also come with higher interest rates and shorter repayment terms compared to traditional mortgages. For experienced investors with a solid understanding of the market and renovation process, fix-flip loans can be a strategic financial tool. However, novice investors should approach these loans cautiously, as they entail significant financial risk and may require a proven track record to secure favorable terms.

Important

Keeping your Debt-to-Income (DTI) ratio below 30-40% of your monthly income is crucial. This will help you avoid potential financial problems in the future. Additionally, always assess the necessity and feasibility of taking a loan, ensuring you can comfortably manage its repayment.

How to Choose a Mortage Lender

  1. Check Associations. Look for lenders who are members of reputable organizations, such as the Mortgage Bankers Association (MBA). Membership in these organizations can indicate a higher level of reliability and professionalism.

  2. Review Terms and Conditions. Carefully examine all the terms and conditions of the mortgage contract. Pay special attention to details like the loan term, fixed vs. variable interest rates, and any prepayment penalties.

  3. Interest Rates and Costs. Scrutinize the interest rates and ensure that your contract includes a detailed breakdown of the total cost of the mortgage, including closing costs, origination fees, and any other charges.

  4. Right of Rescission. Remember you can utilize your right of rescission, which typically allows you to cancel the mortgage within three days after signing the agreement. Additionally, use the "cooling-off" period to thoroughly review the contract and make an informed decision before finalizing the mortgage agreement.

  5. Compare Offers. Shop around and compare offers from multiple lenders to find the best rates and terms that suit your financial situation.

Additional resources

FAQ

Are fix-flip loans worth it?

Determining whether fix and flip loans are worth it depends on various factors, including the specific property, market conditions, and the borrower's experience and financial situation. Fix and flip loans can be beneficial for investors seeking to capitalize on opportunities in the real estate market by purchasing distressed properties, renovating them, and selling them for a profit. These loans offer fast access to funding and flexibility in terms of property types and renovation projects, making them attractive options for experienced investors with a solid understanding of the market and renovation process. However, they come with higher interest rates and shorter repayment terms compared to traditional mortgages, which can increase the overall cost of the project and require careful financial planning to ensure profitability.

What are the terms for a fix and flip loan?

The terms for fix and flip loans typically vary depending on the lender and the specific circumstances of the project. However, common terms include short loan durations ranging from six to eighteen months, interest rates between 8% and 18%, and loan-to-value (LTV) ratios of up to 90% of the property's after-repair value (ARV). Additionally, borrowers may be required to provide a down payment, typically ranging from 10% to 30% of the purchase price or ARV, and demonstrate their ability to repay the loan through a solid credit history, income verification, and a proven track record of successful real estate investments or renovations.

What is the 70% fix-flip rule?

The "70% fix and flip rule" is a guideline often used by real estate investors to assess the viability of a fix and flip project. According to this rule, investors should aim to purchase a property at 70% or less of its after-repair value (ARV), minus the estimated renovation costs. This rule helps investors ensure they can generate a sufficient profit margin after accounting for the purchase price, renovation expenses, financing costs, holding costs, and potential contingencies. Adhering to the 70% rule can mitigate risks and increase the likelihood of a successful fix and flip project by ensuring the property is acquired at a price that allows for a profitable resale while covering all associated expenses.