How To Get A Loan For Flipping Houses

Anyone looking to obtain loans for flipping houses and fixing them up will likely have several options to choose from.

But, as with any type of funding, you’ll first need to qualify by meeting certain financial requirements.

Before you start real estate investing and planning to fix and flip a property, let’s explore some of the best loans for flipping houses.

Types Of Loans For Flipping Houses

Traditional home loans, such as those with a 15- or 30-year repayment term, probably aren’t the best fit for a short-term house-flipping project.

If you’re wondering how to finance a house flip, you may wish to consider these options instead:

• A hard-money loan: Hard-money loans are short-term loans that may require you to use real property or equity as collateral. They’re typically offered by private lenders or investor groups rather than banks and credit unions.
• A home equity line of credit: A home equity line of credit (HELOC) is a type of second mortgage that allows you to borrow money against equity you’ve amassed in your current home. You’ll access the money in the form of a revolving line of credit.
• A cash-out refinance: This option allows you to capitalize on equity you’ve built up in your home and provides you with cash in exchange for taking on a larger mortgage.
• A loan from your personal network: These are funds provided to you by friends, family members or acquaintances who wish to help back your project, perhaps in exchange for interest payments or a share of potential profits.

Who Offers Financing Loans To Flip Houses?

Various types of lenders offer loans for flipping houses, and some provide multiple options to pick from.

Lender types that you may wish to consider include:

• Private lenders: These include banks, credit unions and other traditional financial institutions.
• Hard-money lenders: These are loan issuers that require you to secure a sum borrowed with real property or equity as collateral.
• Fintech services: These are online or app-based financial technology lenders.
• Crowdfunding sites: These are cloud-based services that allow you to solicit and pool funds from myriad investors.

Pros And Cons Of House-Flipping Loans

A house-flipping loan, like any type of loan, comes with both advantages and disadvantages. Up next are some to consider.

Pros Of Home-Flipping Loans

You’ll have flexible financing options when choosing a house-flipping loan.

You also only be responsible for a relatively small upfront out-of-pocket financial commitment, which can allow you to save money for later expenses. Also, less of your own money is required overall for a fixer-upper, so you might be able to afford a larger purchase.

Cons Of Home-Flipping Loans

Depending on the particular loan you choose, you may have to offer up collateral or give up equity. These loans often come with high interest rates, along with recurring fees and payments.

Keep in mind also that late or missed payments will damage your credit.

How To Get A Loan To Flip A House

To get a house-flipping loan, you’ll need to meet certain lender requirements and disclose select financial information. This typically means meeting credit score minimums, making a minimum down payment and providing lenders with a copy of your employment, residential and credit histories.

Lenders that issue loans for flipping houses also want to feel assured about the profitability of the property you’re financing. You’ll need to calculate the after-repair value (ARV) to show lenders that the property will be worth their investment.

Other Expenses Of A Fix-And-Flip Project

When considering how to finance a house flip, it’s important to not only make sure you have enough money to cover the expense of the real estate itself but also unforeseen costs. In addition, you’ll want to take time to review your cash flows and figure out when money may be paid to or withdrawn from your bank account.

Next up are some common fix-and-flip real estate project expenses to be prepared for.

Renovations And Repairs

If you’re looking to fix and flip a house or renovate a structure, you’ll need to pay for materials, labor and equipment. You may also need to factor in the cost of demolition, maintenance and waste removal. Keep in mind that it’s not uncommon to uncover unexpected issues or hiccups as you go about renovating and repairing a property, and your budget may quickly swell as a result.

As a safeguard, try to keep a 20% – 30% cash reserve fund on hand.

Homeowners Insurance

Homeowners insurance provides you with a financial safety net, as it guards against potential property losses or damage, including around real estate rehabs. Properties (especially distressed properties) may often be viewed as higher-risk holdings that require you to obtain a policy separate from your personal homeowners insurance package.

Obtaining homeowners insurance comes at an added expense for real estate flippers but can help you safeguard your property against accidents, damage, natural disasters and other events.

Utilities

Real estate investors may often find themselves needing to pay for utilities such as gas, water and electricity. Sewage and trash may also present expenses you’ll have to cover. If you need questions answered about the average cost of utility expenses for your property or geographic area, be sure to check with your local utility providers.

Additional Expenses

Other fix-and-flip expenses often come into play as you seek to renovate and rehab properties. For example, if you want to change the layout of certain areas of your property, you may need to hire a general contractor. If you want to install new floors, you’ll have to pay for the cost of materials. If you hire someone for these jobs, that’ll mean paying for the cost of labor, too.

You can also expect to pay property taxes and capital gains taxes. As a result, it’s wise to maintain a cash cushion for expenses that might crop up as you go.

The Bottom Line

Since there are multiple loans for flipping houses and several ways to finance a real estate investment, do ample research before applying for a loan and committing to it. You’ll need to identify and plan for any fees and expenses (including often-overlooked ones such as property taxes, HOA dues and real estate agent commissions) that you might incur as you work through your property renovation.

As long as you take your time and choose the right type of loan for your project, you’ll be able to get your project off the ground in no time.

Still looking to finance your flip? Get started with our quick online mortgage application process today.