With incredible returns on investments, more and more people are looking to flip houses.
Flipping homes is a complicated procedure. From costs involved such as rehab costs to knowledge of the real-estate landscape, there are many aspects to be considered.
However, the first and the most important of all roadblocks is financing. You need to be very smart when choosing fix and flip loans.
When you are looking for a short-term investment, like that of flipping houses, traditional loan option might not be a good choice.
Here are a few types of financing options that flippers have:
Hard Money Loans or Private Money Loans
A private money loan, or hard money loan, is a type of short-term loan that fix and flip investors use to obtain a property, renovate it and sell to get profits.
Hard money loans might be quite costly, but they have lenient eligibility criteria. What’s more, it is quick. This means that you can get the required funding as early as 15 days.
For obtaining hard money loans, the credit score should be more than 550 and the debt to income ratio can be around 35% to 45%.
Cash Out Refinance Loans
This can be a smart strategy for a fix and flip investor. In this type of financing option, the investor can use his existing property to purchase a new property. This means that they can extract an equity that will allow them to get a new loan.
This loan is considered as first lien, that is, in case of a default, this debt holder will be paid before all others.
For obtaining cash out refinance loans, a credit score of more than 640 is required; whereas, debt to income ratio must not be more than 45%.
The term of the loan can be 15 to 30 years. The interest rates charged can vary from 2.99% to 5%.
Home Equity Line of Credit
This type of financing option operates more like a credit card than a loan. Depending on the value of their existing homes, fix and flip investors are provided with a line of credit.
The draw period (the time in which lenders can borrow money) varies from 5 to 10 years. The repayment period is around 20 years and interests keep getting accrued in this time period.
The credit score has to be 640 or more and the debt-to-income ratio should be 45% or less.
Being leaders in commercial lending, we at Harper Financial offer a wide variety of fix and flip loans for real-estate investors. Carefully assessing your financial situation, we provide funding for your fix and flip.