Tom Christo
How can you get a loan to flip a house?
The answer to this question is definitely yes, as a real estate investor you can get a loan for flipping a house. Although, the process is unlike than when you’re purchasing a home to live in or a rental property. A traditional loan do not lend money for home renovations, and if a bank provides the loan you don’t really need it for 10, 15 or 30 year mortgage for a homo you’re planning on flipping and selling within a months later. You have alternative options when seeking financing, for one hard money loans and or venture capital from a private investor. To put it in a nutshell these lenders are corporation that lend money on real estate investments that require a quick return to repay the loan back. Normally, hard loans are used for flipping homes, but they can also be used as a Bridge loan, for a short-term loan for the full value of the original house before renovations. The buyer will receive a bridge loan to pay off the existing mortgage before a long-term loan can be obtained.
What are the benefits of getting a loan to flip a house?
There are quite a few reasons to get a loan for your next flip investment and even if you can afford to complete all of the renovations here are some options:
Amp up your buying power
Home renovation loans have relatively low down payment requirement in most circumstances, for a hard loans; financing your project will certainly need to fit within the lenders loan-to-value ratio demands. Banks typically provide 80% of the before-repair value, whereas hard loan lenders will lend 60% to 80% of the after-repair value. You will certainly have to disclose you have adequate cash to contribute 20% to 40% of the renovation price. The lender will call for a lien on the property, which acts as security on the financing. I’ve seen trustworthy hard loan lenders who will finance as much as 90% of a property’s purchase price and 100% of all repair costs for a qualified investor. Using the loan money to fund your investment property can dramatically amplify your buying power and profit potential.
Low risk money investments
In general, flip loans are made out to a limited liability companies (LLCs) and not to a personal investor. An LLC can provide some protection on your personal assets in case something goes wrong and can have benefits with tax write offs.
Acquiring multiple investments
Even if you have the cash on hand to fund your investment property, obtaining a loan enables you to only commit a small amount of capital. This allows more of your funds available when opportunities arise for purchasing.
What qualifications do I need for a flip loan?
A non-investor person applies for a traditional mortgage for personal home to live, the property has to meet an appraisal by the lender, the lender uses the appraisal to determine the property’s value and approves the for the value of the property. With a traditional mortgage a rate is mainly fixed for a period of time normally 30 years but some have 15 years with a slightly lower rate but must be paid on time.
On the other hand, qualifying for a flip loan is different and more focused on the property itself and your business plans for it. The home’s after-repair value (ARV) justify’s the loan value and amount needed to bring the home to par. The renovation budget and timeline must be realistic to obtain the loan. In a nutshell, the loan-to-value ratio and loan-to-cost ratio are likely to be more important to a lender than your personal income and personal assets.
The two primary resources of financial investment property loans are financial institutions and hard-money lending institutions. Some huge financial institutions in this market include UNITED STATE Financial institution, Bank of America, and Wells Fargo. Still, you might be able to obtain a better deal from a neighborhood bank or credit union. You can obtain hard-money financing from financial business firms such as RCN Resources, Lending Home, Spot of Land, and Lima One Resources. If you research lending institutions online, make sure to examine their qualifications and the issues lodged versus them, utilizing resources like the BBB and your state’s chief law officer’s workplace.
You can also work out a funding bargain directly with the residential or commercial property proprietor. An additional alternative is to use your residence’s equity via a house equity finance or credit (HELOC).
These funds permit you to borrow against the equity you have developed in your primary residence, usually as much as 80% of the equity worth. Nonetheless, these funds are protected by your home, suggesting that the financial institution can foreclose if you fail to make payments. We do not recommend this choice for new or unskilled Rehabbers.
Documentation you will need to apply for a flip loan?
Additional to filling out a loan application, you should prepare a certain documentation to submit when applying for an investment loan. This may include, but is not necessarily limited to:
- Bank statements, for either yourself or whatever entity (LLC, etc.) you plan to use.
- A copy of your driver’s license or other government-issued ID.
- An LLC operating agreement (if applicable).
- An executed sales contract for the property.
- A list of any other properties you (or your LLC) own.
- Documentation of other fix-and-flip projects you’ve completed.
- Your personal tax returns.
- Estimates from a licensed contractor for any proposed repairs or renovations.
