What Are Fix and Flip Loans?
Flipping houses can be a profitable investment, but securing the right financing is often a challenge. Traditional mortgages are designed for long-term homeownership, making them less suitable for short-term investment properties. To meet the needs of real estate investors, fix and flip loans were created as a specialized financing solution.
Understanding Fix and Flip Loans
Fix and flip loans are short-term real estate loans that help investors purchase and renovate properties with the goal of selling them for a profit—typically within 12 to 18 months. While some investors rely on conventional loans or lines of credit, most fix and flip financing comes from our hard money lending process.
These loans are commonly used to acquire distressed properties at auctions or foreclosures, fund renovations and upgrades, and cover additional expenses associated with property ownership.
Fix and Flip vs. Traditional Home Loans
Traditional home loans and fix and flip loans serve different purposes and have key differences in terms of structure, duration, and requirements:
Fix and flip loans are specifically designed to fund property renovations and resale within a short time frame, while traditional home loans are structured for long-term homeownership.
6 Types of Fix and Flip Financing
Hard Money Fix and Flip Loans: to secure hard money loans. These loans are typically easier to obtain and faster than traditional loans but often come with higher interest rates.
Home Equity Loans (HEL) or Home Equity Lines of Credit (HELOC): If the borrower already owns a home, they can leverage their existing equity to fund a flip. These options are more restrictive in terms of flexibility and amounts available compared to hard money loans.
Cash-Out Refinance: This method involves refinancing your current mortgage to free up equity in your home. The extra funds can then be used for a fix and flip project.
Acquisition Line of Credit: Similar to a HELOC, an acquisition line of credit is used to finance a property acquisition. However, it typically requires greater personal security, and may not be a viable option for new investors.
Getting Started with Fix and Flip Loans
The term “fix and flip loan” generally refers to hard money loans, which are tailored specifically for the fast-paced world of real estate flipping. Unlike traditional bank loans, hard money loans offer quick access to funding, which is essential for successful flipping projects.
If you're just starting out with flipping, it's important to get familiar with the real estate market and learn how to estimate renovation costs accurately. Once you're ready to begin, the next step is to find a reliable local hard money lender who has a proven track record.