Top Financing Options for Flipping Houses
Perhaps one of the top obstacles that the short-term investors need to face is their funding. Investors require capital in order to buy and develop before they can flip the property to generate profit. Fortunately, there are different financing options that are available for the flippers. The type of fix and flip loans that you need to acquire may depend upon the existing property, project or the preference of the investor.
The Best Fix and Flip Loans
To those who are in real estate investing, they are probably aware that it requires a huge amount of cash to fix and flip houses. Aside from purchasing houses, the flippers are also obliged to shoulder the cost of repairs, broker fees, and listing fees. In addition, you should also hold these cost until such time that you can sell the property. Here are some of the loan options that you need to consider when flipping houses.
Hard Money Loans
This type of financing option is ideal for beginners and experienced flippers who require a quick source of cash. Hard money loans are also known as private money loans that you can use to finance the development and purchase of the property. The hard money loan is commonly more expensive compared to the permanent mortgage. However, compare to the other types of fix and flip loans it only requires minimum qualifications. In most cases, the investor can receive their approval in a matter of 15 days. The minimum qualification is the reason why it is popular among novice flippers. In most cases, they will only require a credit score of 550+, past rehabilitation projects and 35%-35% ratio of Debt to income.
The cash out loan is a technique wherein the fix and flip investors will refinance the property in order to finance the development and purchase of a new project. This assists the flippers to extract equity from the existing project by paying an existing mortgage and issuing new loans. The new loan is referred to as first lien. This simply means that the existing liens should be settled first before the investors will be able to extract its value. The amount of cash that the investor can use would be contingent upon the new loans and the amount of the old mortgage. Compared to hard money loans, cash out has a higher qualifications requirement such as 640+ credit score, cash reserves that can last up to 6 months, minimum of 2 years of personal tax and others.
HELOC (Home Equity Line of Credit)
HELOC has a maximum fix and flip loan that amounts to the 85% of the total loan: value ratio of the property. This can be used by the flippers to finance their investment purchase. They can use the loan from HELOC to develop and purchase a property or use it as a down payment for their hard money loans. The interest of this loan will not accrue until such time that the actual draw has been conducted. This is why it is popular among investors who do not have a specific project on their mind.
Experienced flippers are aware that in order to make the most on flipping houses, you need to have an access to the best loans in the market. When choosing a loan, the payment option, interest rate, terms, and condition should suit your preference and requirement.