Many investors are interested in flipping houses. It can be a great way to make money if done properly. However, getting started is often the most challenging part because you need money to buy the first house. A traditional mortgage is intended for someone that is going to stay in their home. This is not always best for someone that is looking to purchase a property to buy, fix, and then sell. Fix and flip loans are better suited for this type of investment.
What Are Fix and Flip Loans?
Fix and flip loans are intended to give an investor resources to renovate a property and then sell it for a profit. This is usually a short-term real estate loan. Usually, the house is sold in 12 to 18 months. These are also referred to as hard money loans. Hard money lenders or private lenders make real estate loans based on the value of a property. Often, these properties are purchased during the foreclosure process or at an auction. The loans also cover the cost of upgrades and renovations.
Difference Between Fix and Flip Loans and Traditional Loans
A fix and flip loan are intended to last a short time, about six months to 18 months. A traditional loan is for a longer-term, about 15 years to 30 years. For a hard money loan, the interest rate is typically higher, between 12% to 18%. Conventional loans can be as low as 2% but may go up to 7%. In addition, a fix and flip loan uses the property as the determining factor for the loan approval. In contrast, the borrower’s credit and the property play a role in the approval of a conventional loan.
Advantages of Fix and Flip Loans
There are many benefits to these types of loans. First, they are funded quickly, usually within one week, to get money to investors fast. The terms are much more flexible. The requirements for a traditional loan are usually more rigid, and hard money loans do not have the same parameters. Finally, they are not as risky for an investor because the property and not your credit back it.
If you are interested in discussing fix and flip loans, contact us today to find out more information.