When purchasing a home to flip, you might assume that your only option is to take out out a mortgage for the home. Then, you'd fix it up and sell the home while using the profits from the home sale to pay off the mortgage. However, for fix and flip investors, there are loans tailored specifically to them. There are several ways that a fix and flip loan differs from a conventional mortgage.
More Likely to Be Approved
While a mortgage lender is often concerned about the state of the home, a fix and flip lender is willing to lend money to a property that is in disrepair. You will need a great credit score to qualify for most fix and flip loans, though some loans simply take into consideration the value of your asset. Hard money loans are the easiest to get approved and you can often receive funding in half a month.
A fix and flip cash-out refinance is another alternative to the hard money loan. You are able to use the equity from a property that already exists for paying off the existing mortgage with a new loan. This allows you to free up equity to pay for renovations. You must pay off the existing liens before you are able to use the remaining balance for other purposes. However, you can use the remaining balance for whatever you want.
Receive a Loan Fast
A fix and flip loan has a much shorter term. You can receive a loan that matures after 12 months. With a mortgage, you may be forced to pay a penalty if you prepay. However, this isn't a problem with a fix and flip loan.
A fix and flip loan can often have a more attractive rate than a mortgage. The fix and flip loan not only can be used to purchase the property but can also be used to pay for renovation costs. This can be ideal if you are able to afford part of the asking price but need credit to close the sale. You will simply need to pay 1-2% of the loan amount as a fee.
There are several other loan options for fixing and flipping a home, such as an equity line of credit or an investment line of credit. Regardless of the option you choose, the fix and flip loan is usually a better option than a traditional mortgage.
For more information on fix and flip loans, contact a financing service.