Although loans may sound complicated and scary, they are actually much easier to secure than you think. Anyone interested in any real estate investment property will need to find proper financing before they begin their house flip. It is likely you will find multiple options of lenders and loan terms, it’s just figuring out which option of financing is best for you. This article will discuss how to secure a good loan and lender when you are looking for financing for flipping houses.
What Should I Expect In A Flip Project?
Before you are able to secure any kind of financing for your house flip, you should be aware of what expenses will need to be paid during this flip. You should be aware of any issue that could arise during your flip, even if you think it is unlikely the issue would occur. Being prepared for both the expenses you are expecting and the ones you are not will help you budget property for this house flip. Understanding your financing for flipping houses is one of the most important parts of a house flip.
You should also be prepared for any expense as your lender may ask you what you are looking to fix in the house. Depending on your loan, some lenders provide a loan for both the cost of the home and some of the remodels inside. In this case, you should be prepared to tell your lender at least a basic overview of what you are fixing in the house and using the loan for. If you come prepared to discuss these aspects of your home flip with your potential lender, they are also more likely to give you the loan or work with you in the future.
Below are some typical expenses of a house flip.
This type of insurance helps to provide a sort of financial safety net to your house flip. Homeowners insurance protects your house against a variety of things such as real estate mishaps, damage to the property, or any losses. You will need to make sure to review homeowners insurance with your lender or insurance carrier before you commit to flipping and fixing a house. Some properties are also at higher risk if they are considered distressed properties and have been vacant for many months. These types of properties may need another kind of insurance, one that accounts for more of a higher risk. All of these aspects can be discussed with your insurance carrier or lender, and are all necessary to secure financing for flipping houses.
Repairs and Renovations
Renovations and repairs come along with almost every house flip, and to do these changes, you will need to pay for materials, labor, and equipment. With repairs and renovations, there are also some other possible costs to consider such as waste removal, demolition, and maintenance. It is important to make sure you are prepared for any and all unexpected expenses that may arise during your fix and flip.
Another aspect of financing for flipping houses real estate investors may forget about is utilities. Some utilities you may need to pay for are water, electricity, and gas for your property. Additional utilities such as trash removal and sewage may also be needed. Local utility providers will be able to let you know the prices of all these utilities in the area of your potential fix and flip. They also could be helpful in providing recommendations to cut down on some of these utility costs that may not be absolutely necessary at times, or, recommend renovations to make to the property to limit energy and grow your return on investment once you sell the property.
Any Additional Expenses
While there are expenses you will be aware of when beginning to slip a property, there may be some that are discovered during renovations. It is important to be prepared for any costs which you are not expecting from the start. Keeping some money aside from your loan or renovation budget is a smart idea when planning your financing for flipping houses.
Where Do I Find Loans?
Now that you have a general idea of what sort of expenses to expect when flipping a house, you can start to find a lender. Lenders look at many things when they are considering giving out loans. They look at your credit and your personal finances to ensure you will be able to pay back the loan. This factor may scare some people, as they might have bad credit or not much cash to be able to invest themselves in a house flip. There is no need to worry, even with bad credit or low upfront cash there are still lenders who will give you a loan.
If you are interested in flipping houses with bad credit, consider working with a private lender for a loan. They can be a great source of funding for investors whose credit isn’t the best. Private lenders are able to provide secure loans without as many rules and conditions as a bank loan may have. Banks typically work with many financial products and the stock market, private lenders simply make all of their money through investing. This factor means they are able to have fewer regulations on the loan, and more interest to you and your project, in this case, a house flip.
Private lenders do not with alongside the bank or any government agency, therefore they are able to create their own rules regarding their loan. Typically, this means they ask for higher fees, as they are taking a risk that isn’t protected by any bank or government agency. Although higher fees might not be the best, private lenders are also able to give you the loan much faster than other lenders as it’s their own money.
People with bad credit may only have the option of working with a private lender. Even though there are higher fees, working with a private investor can offer secure financing for flipping houses to real estate investors with low credit, who otherwise may have not gotten a loan.
A Home Equity Loan
To be qualified for this type of loan means you would have needed to create equity in another home. Typically, people use home equity loans to buy another home, but they can also be used to start a business, like fixing and flipping houses. To access a home equity loan, you need to look at your cash-out refinance. This refinances your current mortgage and allows you to take out as much as you have already paid.
Within a home equity loan, you can also apply for a HELOC, or a home equity line of credit. In this type of loan, you can borrow money that is against your equity, and pay it back monthly. This option is sort of similar to how you pay for your credit cards. A benefit to a HELOC is it is often tax-deductible, which would also help save some costs during your house flip.
Hard Money Lender
This can be a good option for how to flip properties with no money down as hard money lenders are usually more focused on the real estate world. Although these types of loans are short-term loans that need to be paid back in a few months or a year, they tend to be higher. Higher loans mean more money to put towards your investment property. These loans also work similarly to private lenders, in which there are no bank or government agency rules and regulations. Hard money lenders create their own terms for the loan. These terms have high-interest rates, up to 15% as they want to make their money back as fast as possible.
Working With Another Flipper
A great way to get financing for house flipping is to work with another individual who fixes and flips homes. This can be beneficial in many aspects: they may have access to a lender they work with frequently, they could have personal finances to put into the flip, and they could have a strong background in house flipping which contributes to the overall house flip. Working with another flipper offers many benefits you may not find working alone or with a lender. Always make sure to sign a contract with the other flipper involved that states clearly the profits each of you will make on the property.
Work With a Real Estate Agent
Working with a real estate agent who is familiar with the business can be a great way to find financing for flipping houses. They are the first ones to know about good investment properties to flip and have access to resources such as lenders. Real estate agents can help get the best price for a property as well, saving money in the future that can be used towards other things in the renovations and repairs.
How Do I Get A Loan?
Any lender, whether it be a private lender or one from a bank or government agency, will review certain factors before deciding if you qualify for a loan. All lenders will look at your credit score, how much of a down payment you can make, your employment history, credit history, and your residential history. All of these are used to help lenders determine if you meet their minimum lending requirements. Although some lenders, such as private and hard money lenders create their own rules, they still consider all of these aspects as they want to ensure they will make their money back.
Any type of lender will also most likely ask for your plans when fixing and flipping a house. They will want some details as to how you will spend the loan, besides using it to purchase the property you will fix and flip. When a lender asks you this question, tell them about certain renovations and repairs you wish to do to the property, any additions you want to add to the property to enhance its resale value, and any other additional factors that the loan money could be used for. Coming prepared to discuss these aspects with potential lenders show them you are serious about this house flip and prepared for all aspects. This makes them more likely to work with you, even if you have financial implications such as bad credit.
A good real estate investment strategy for someone with low credit or no money to put down on a hose flip should consider working with private lenders to get a loan as they make their own rules, and can overlook bad credit and other factors that may impact your ability to receive a loan at a bank. These lenders will have larger fees but may be the only real estate financing option for some house flippers. No matter your situation, you should explore all options of lenders before committing to one.
There are many aspects to consider before you commit to flipping a hose. You need to review all of your expenses to make sure you budget enough for the ones you are expecting, and the ones you are not. The most important factor to establish before you flip a house is securing financing for flipping houses. It is impossible to do anything before you have the proper finances to do so.