4 Types Of Loans For Fix & Flip Projects

Some articles ago, we talked about things to consider before starting a house flipping business. We mentioned that it is good to have more than one financing option because this way, you can be sure that when the right property appears on the market, you’ll be ready to purchase it right away. Knowing your funding options gives you the freedom to act fast and worry less when you see an appealing deal.

Here are some types of loans available for fix & flip projects. Take time to explore the advantages of each one for your particular situation and gain scores on your investing journey.

1. Cash-out refinance

Cash-out refinance is a type of loan that lets you convert home equity into cash. You take the mortgage for a bigger amount than your previous mortgage balance and get the difference in cash. You can use this money for any purpose, including buying a new investment property for flipping. To qualify for this type of loan, you’ll usually need a good credit score and 40 to 50% equity in an existing property. Not every investor can meet these requirements, which is why the next option might be more suitable in many cases.

2. Hard-money loan

Hard money loans are a convenient tool as they are faster and easier to get compared to many other types of loans. They are a great solution if your credit score is low, if you know that you can flip the property fast, or need really quick and easy access to funds to close a hot deal. A hard money loan often covers not only the purchase of the property but also the cost of renovation and repair. When you apply for a hard money loan, the collateral you are securing your loan against matters the most. That’s why neither a credit score of a borrower nor his proof of income is of primary importance to hard money lenders.

3. Home Equity Line of Credit

With home equity line of credit (HELOC) you are borrowing against the available equity in an owner-occupied home, and the house itself is used as collateral. To qualify for this type of loan, you’ll need to meet stricter criteria in comparison with those announced by hard money lenders: a solid credit history, a certain level of monthly income and debts, employment history, etc. And even if you meet the requirements, remember to measure all risks carefully as you’ll have to guarantee the loan against your personal property.

4. Investment Property Line of Credit

Investors who have already built up much equity on their investment property may consider applying for an investment property line of credit (LOC). This type of loan operates much like a business credit card. It allows the investor to take as much or as little as needed up to the specific credit limit. Some investors use the money they get from LOC to cover a downpayment for a hard money loan. It may be a good solution IF you are sure that you’ll be able to flip the house fast and with a good profit margin.

As you can see, there are quite a few options to consider when it comes to getting funds for your fix and flip business.

You may not be qualified for every type of loan, though. That is why it is always better to test the waters beforehand and talk to lenders about their loan programs. As a hard money lending firm, we encourage the investors to send us their documents upfront, even if they are waiting for the decisions from other lenders. This way, we can back them up in case their first choice doesn’t work out.

Do you want to know if you qualify for a hard money loan? Contact us, and let’s see how we can help you.