Different Types of Loans for Fix & Flip Property Projects
Real estate investors use fix & flip loans for buying, renovating, and re-selling properties to earn a profit. There are different kinds of fix and flip loans.
Hard money loan
This is the most popular loan type suitable for experienced and novice investors to finance a property in poor condition. Rather than concentrating on the background of the borrowers, the money lenders focus on the property’s potential value. The loan rates are high and have a short-term of 1 to 3 years. Borrowers can pay the loan early without any penalty on pre-payment.
Finances – 90% of LTV [loan to value of property] and 75% ARV [after repair value] within 15 days.
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The investor can extract equity from the existing property through the issuance of a new loan. A new loan is regarded as the ‘first-lien’. It means the existing mortgage if any needs to be repaid first. The funds remaining after repaying the old mortgage can be used to invest in other properties.
Finances – 75% LTV at a minimum rate of 5.45% for 15 to 30 years within a mont
HELOC or Home equity line of credit
HELOC can be a 1st or 2nd lien. It means you can take another loan even if there is an existing loan. HELOC can be taken on the primary residence and not an investment home. The HELOCs real value is in the form of credit, so investors get a maximum budget and even time to foreclose a property.
Finances – 85% LTV at a minimum rate of 3.5% for 25 to 30 years gets approved within 30 to 45 days.
Line of credit or LOC
HELOC is a long-term loan but LOC fulfills short term cash needs. LOC funds can be invested in a single or multiple property.
Finances – 75% LTV at a minimum rate of 6.99% for 18 months to 2 years gets approved within 30 days.
Bridge loans allow covering the time between two property transactions. Investors can purchase fix & flip property without a condition to sell the other property first. With bridge loan funds rehabs cannot be financed.
Finances – 65 to 70% LTV at a minimum rate of 7.99% for 12 – 18 months get approved within 2 to 3 weeks.
Where to look for fix & flip property loans?
Banks, private lenders, crowdfunding, and online lenders are some ways of getting a loan to fix & flip a property. Investors can use loans to enter a fix & flip property business. It allows them to buy, fix, and resell several properties at the same time. It increases their overall profits and helps to build a reputation as a real estate agent in the market.