Types of Loans for Flipping Houses
As a real estate investor, the readily available types of loans for flipping houses can make or break a deal. This is because some lenders and types of loans for flipping houses are better than others.
At ABL, we offer Fix & Flip loans that can be tailored to your project. Unlike traditional lenders, we qualify you based on the deal more than your creditworthiness. Once approved, you can receive funding in as few as three days.
How Much Does It Cost to Flip a House?
Before exploring different kinds of Fix & Flip loans, determine how much you need to borrow. As a rule, you should expect the following costs:
- Renovation costs: This includes the labor, supplies, and materials for the rehab.
- Holding costs: These are homeowner expenses you must pay until you resell the property. They typically include property taxes, home insurance, utility bills, and the monthly loan payment.
- Marketing costs: This is the cost of reselling the property. Typically, it includes hiring a professional photographer and an agent to list the property for sale.
- Financing costs: This includes the down payment, interest costs, any fees for financing all of the above, and the initial property purchase.
Of course, the cost of a fix and flip can vary widely based on the project and market. However, you can gauge whether a deal is worthwhile using the 70% rule. It states that you should pay no more than 70% of a property’s after-repair value (ARV) minus renovation costs for a fix and flip. For example, if a property will have an ARV of $500,000 after $100,000 in repairs, pay no more than $250,000 for it ($500,000 x 0.7 – $100,000).
Types of Fix-and-Flip Loans
Once you’ve estimated how much a potential fix and flip will cost, explore different loan options:
Private Money Loan
A private money loan is a loan issued by a private company or individual (instead of a conventional bank). As a result, they often have more flexible eligibility requirements and loan terms. For example, ABL is a private money lender, and we work with borrowers of all experience levels and tailor our loans to the needs of each project.
Hard Money Loan
A hard money loan is a loan backed by an asset. In real estate, this is almost always the property being financed. Furthermore, the value of the collateralized asset is the main criterion for getting approved. At ABL, we provide 12-month hard money loans for up to 85% of the property purchase and 100% of the rehab costs.
Cash-Out Refinance
A cash-out refinance is a loan that lets you pull equity out of a property you already own by replacing an existing mortgage. For example, if you own a property with a mortgage balance of $150,000 and replace the loan with a new $200,000 mortgage, you could pocket the $50,000 difference in equity as cash. You could then use that money to fund a new Fix & Flip project.
Portfolio Loan
A portfolio loan is a loan that a lender keeps in their own portfolio instead of selling it on the secondary market to big investors like Fannie Mae or Freddie Mac. As a result, the lender isn’t required to meet conforming loan standards and can be more flexible on loan criteria and terms.
As a direct lender, ABL offers portfolio loans to maintain more control over the lending process, leading to faster closings and customized loan solutions for borrowers.
Blanket Loan
A blanket loan is a single loan that covers multiple properties. This can be a great option if you are flipping more than one property at a time. At ABL, we offer blanket loans for up to 10 properties at a time. Contact one of our blanket loan experts to learn more.
Choosing the Right Fix-and-Flip Loan For Your Project
When choosing between Fix & Flip loan options, carefully consider your needs, goals, and risk tolerance. For example, if you’re low on cash but have a lot of equity in another property, consider getting a cash-out refinance. However, if you have multiple flipping projects lined up and want to save time and money on securing financing, consider a blanket loan.
How to Get a Fix-and-Flip Loan
Once you’ve settled on the type of Fix & Flip loan you want, here’s how to secure it:
1. Finalize Project Details
First, you must finalize the project details. This means gathering blueprints, estimated costs, construction timelines, and contractor details. Lenders will want to review this information before approving a loan.
2. Compare Lenders
Some lenders are better than others. To ensure a positive borrowing experience, ask your network for recommendations and check online reviews and ratings. ABL has over 500 5-star reviews, demonstrating a solid track record of happy investors, including many repeat borrowers.
3. Pre-Qualify
Pre-qualifying for a Fix & Flip loan gives you an estimate on loan terms so you can compare loan offers before committing to one.
Typically, you only need to provide some basic information about yourself and your project. For example, at ABL, we ask for your name, contact information, loan purpose, property address, and some other optional details. We keep your information 100% confidential, and there’s no impact on your credit or obligation to work with us. You have nothing to lose!
4. Apply for a Loan
If your project meets a lender’s basic criteria, you can fill out a loan application with further information and documents—such as the purchase contract, title history, anticipated scope of work, and contractor details. This lets the lender determine whether the project promises enough return to be a good investment for you and them.
5. Close the Deal
Once approved, you’ll sign closing documents to seal the deal. This usually happens at a title company or attorney’s office when you close on the property purchase.
Discover All the Different Types of Loans for Flipping Houses at ABL
Ultimately, getting the right Fix & Flip loan is easier than you might think. At ABL, we’ve helped investors nationwide seize flipping opportunities with our quick and flexible funding. Plus, our local teams can guide you to ensure a successful flip from start to finish. Pre-qualify today!