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How To Get A Loan For Flipping Houses

Scott Steinberg5-minute read

November 13, 2020

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Loans for flipping houses are easier to come by than you may think. Anyone looking to fix up a real estate property or wondering how to obtain financing for flipping houses will find that they have several choices of lenders and loan terms available to them. But given that there are many types of loans for flipping houses, and that you’ll need to qualify for these loans before you can fix and flip a property, it also pays to do some research in advance.

Typical Expenses Of A Fix And Flip Project

Before you consider taking out loans for flipping houses, be sure to review the types of expenses that you may incur as part of the project. You’ll also want to think about how much you’ll need to cover these costs and any unexpected fees that may pop up.

When considering how to finance a house flip, it’s important to not only make sure you have enough to cover the costs of the real estate itself and any proposed overhauls or improvements, but also sufficient funds to provide a backup cushion in case of unforeseen charges. In addition, you’ll also want to take time to review your cash flows, and with what frequency that monies may be paid to or withdrawn from your bank account. Maintaining enough cash in the bank to pay your bills as needed is important as well.

Here are some common sample fix-and-flip real estate project expenses: 

Renovations And Repairs

If you’re looking to fix and flip a house, or renovate a structure, inevitably you’ll need to pay for materials, labor and equipment. You may also need to factor in the cost of demolitions, maintenance, and waste removal. Bear in mind that it’s not uncommon to uncover unexpected issues or hiccups as you set about renovating and repairing a property. Initial work schedules and budgets may quickly swell as a result. As a safeguard, it pays to expect the unexpected, and maintain a 20% – 30% cash reserve fund on-hand.

Homeowners Insurance

It’s also important to factor in the cost of homeowners insurance. Homeowners insurance provides you with a financial safety net of sorts, as it guards against losses or damage to your property that may happen, including around real estate rehabs. Be sure to check with your insurance carrier before seeking to fix and flip a house. Properties (especially distressed properties that may be high risk or have sat vacant for months) may often be viewed as higher-risk holdings that require you to obtain a different policy from your personal homeowners insurance package. Obtaining homeowners insurance comes at added expense for real estate flippers, but can help you safeguard your property against accidents, damage, natural disasters and other concerns.

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 added expenses that you’ll have to field. If you have questions about the average costs of utility expenses for your property or geographic area, be sure to check with your local utility providers. They may be able to provide you with helpful insights that can help minimize costs and recommendations on steps you can take or equipment that you can install (e.g. smart thermostats or solar panels) that can help you cut back on power expenses and energy usage.

Additional Expenses

Other types of fix-and-flip expenses may often come into play as you seek to renovate and rehab real estate properties as well. By way of illustration, you may wish to change the shape or layout of certain areas of your property, redo paint and wallpaper, or give carpets, cabinets, bathrooms and other areas of a property an overhaul. In addition to any fees associated with financing for flipping houses, you can frequently expect to pay property taxes and capital gains taxes. As a result, it pays to keep a comfortable amount of spare funds for added expenses handy as you go.

Take the first step toward the right mortgage.

Apply online for expert recommendations with real interest rates and payments.

Who Offers Financing For Flipping Houses?

Various financial lenders offer different types of loans for flipping houses and provide many options to pick from when you’re considering how to obtain financing. Several types of house-flipping loans that you may wish to consider can be found below:

  • Private lenders – Banks, credit unions, online fintech providers and other financial institutions
  • Hard money lenders – Loan issuers that require you to secure sums borrowed with real property or equity as collateral
  • Fintech services – Online or app-based financial technology lenders
  • Crowdfunding sites – Cloud-based websites and services that allow you to solicit and pool funds from myriad investors

Types Of Loans For Flipping Houses

Traditional forms of home loans, such as 15- or 30-year mortgage loan terms, aren’t necessarily 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 the following options instead.

Hard money loans – Short-term loans that may require you to use real property or equity as collateral. Typically offered by private lenders or investor groups versus banks and credit unions.

Home equity lines of credit – A home equity line of credit (HELOC) is a form of second mortgage that allows you to borrow money against equity you’ve amassed in your current home, and obtain access to that money in the form of a line of credit.

Cash-out refinances – A cash-out refinance allows you to capitalize on equity that you’ve built up in your home and provides you with cash in-hand now in exchange for taking on a larger mortgage. (Allowing you to borrow more than is owed on your current mortgage and keep the difference.)

Loans from your personal network – Funds lent to you by friends, family or acquaintances who wish to help back your project, perhaps in exchange for interest payments or a share of potential profits.

Pros And Cons Of House-Flipping Loans

House-flipping loans, like any form of borrowing, come with upsides and downsides attached. Sample benefits and drawbacks include:

Pros

  • Smaller upfront out of pocket financial commitment
  • Less of your own money required for fixer-upper
  • Flexible financing options
  • Afford larger purchases than you could with cash

Cons

  • May require you to put down equity or collateral
  • Can come with high interest rates attached
  • Recurring fees and payments
  • Late or missed payments can impact credit

How To Get A Loan To Flip A House

In order to get a house-flipping loan, you’ll need to meet certain lending requirements and disclose select financial information. This often means having to meet credit score minimums, make a certain size down payment, and provide lenders with a copy of your employment, residential and credit history. But myriad lenders offer loans that can help you engage in fix-and-flip projects. Perhaps the biggest challenge in the house-flipping process is finding a worthwhile property in which to invest your time and money, rather than obtaining property-flipping financing.

The Bottom Line

As you can see, there are many types of loans for flipping houses, and ways to finance a real estate investment, including fix-and-flip projects. Be sure to do your research upfront so that you can properly account for any fees and expenses (including hidden expenses that you may discover) that you might incur as you work through your property renovation. Have additional questions on how to obtain financing for flipping houses? Be sure to reach out and talk to an expert at Rocket Mortgage® today.

Take the first step toward the right mortgage.

Apply online for expert recommendations with real interest rates and payments.

See What You Qualify For

Scott Steinberg

Hailed as The Master of Innovation by Fortune magazine, and World’s Leading Business Strategist, award-winning professional speaker Scott Steinberg is among today’s best-known trends experts and futurists. A strategic adviser to four-star generals and a who’s-who of Fortune 500s, he’s the bestselling author of 14 books including Make Change Work for You and FAST >> FORWARD. The CEO of BIZDEV: The Intl. Association for Business Development and Strategic Planning™, his website is www.AKeynoteSpeaker.com.