5 Loan Options to Finance Your Next Fix and Flip Deal
Are you a fix-and-flip investor who doesn't have the funds to do it all on your own? Join the club –you're definitely not alone.
Many house flippers face this same challenge. But luckily, there are options available to finance your project. In this blog post, we'll take a look at four types of fix-and-flip loans to help you get started.
Hard money lending
First up, hard money lending. This type of loan is often the go-to for many real estate investors. Hard money lenders offer short-term loans with higher interest rates than you get with traditional loans, typically ranging from 9% to 15%.
Because of the higher interest rates, these loans are not ideal for long-term investments. But if you're flipping a house and plan to sell it quickly, hard money loans can provide the necessary funds to get the project done so you can move on to the next project with ease.
Next, we have bridge loans. These loans are designed to bridge the gap between the purchase of the property and the sale of the property.
Bridge loans typically used when a traditional mortgage is not an option. Bridge loans offer short-term financing with higher interest rates than traditional loans. But, they're a preferred loan of savvy fix and flip investors who need to close on a property quickly.
Fix and flip loan
Fix and flip loans are specifically designed for house flippers. These loans offer short-term financing to purchase and renovate a property with the intention of selling it quickly.
Fix and flip loans typically have higher interest rates than traditional mortgages. Sill, they're a good option for those who don't have a lot of cash on hand and need to finance both the purchase and renovation of a property.
Cash-out refinance loan
You might consider a cash-out refinance loan if you already own a property. With this type of loan, you can borrow against the equity in your property and use the funds to finance your flip. Cash-out refinance loans typically have lower interest rates than hard money or bridge loans. However, the process can take longer since it involves refinancing your existing mortgage.
Home equity line of credit (HELOC)
Another option is a home equity line of credit (HELOC). A HELOC is a line of credit secured by your home's equity. Similar to a cash-out refinance loan, you can use the funds from a HELOC to finance your house flip.
HELOCs typically have lower interest rates than most other loan options, making them more affordable. However, keep in mind the significant risk — if you default on the loan, you could potentially lose your home.
Traditional financing is another option for financing a house flip. Conventional mortgages, FHA loans, and VA loans are all types of traditional financing that you might consider. These loans typically have lower interest rates than hard money, bridge, or fix-and-flip loans.
While traditional financing may seem like the obvious choice for financing a house flip, it's important to consider the specific needs of your project. Traditional mortgages are not designed for house flipping, and the application process can take longer than other types of loans. Plus, most traditional lenders will require an appraisal of the property, which could affect your ability to make a profit on the flip.
Several types of loans are available to help finance your house-flipping project. Hard money lending, bridge loans, cash-out refinance loans, home equity lines of credit, and fix and flip loans all offer unique benefits and can have drawbacks.
It's important to consider your financial situation and the specific needs of your project before choosing a loan. With the right financing, you can turn your house-flipping dreams into a profitable reality.