Finding The Right Loans

Types of Loans Available From Fix and Flip Lenders

17 March 2020

April George

Fix and flip lenders offer people who fix up and resell houses financing options, and there are several types of loans that these lenders offer. If you're in the business of flipping single-family houses, here are some helpful loan options that you might qualify for.

Hard Money Loans: Secured Against the House

Hard money loans are secured against a designated asset, and the asset used is often a piece of real estate. A single-family house is often a viable form of collateral for these loans, and many home flippers use these loans because they're readily available.

If you're new in the industry, a hard money loan has two distinct advantages over other forms of financing.

First, this type of loan isn't backed by the government and isn't subject to the same underwriting requirements as traditional mortgages. Therefore, you may be able to get a hard money loan even if you can't qualify for a mortgage or other form of government-backed financing. 

Second, many fix and flip lenders who underwrite hard money loans have minimal credit score requirements for these loans. Since the loans are backed by a tangible asset, you might be able to get this type of loan even if you have non-pristine credit or are just starting a business and building credit.

FHA 203(k) Loans: Designed for Renovations

FHA 203(k) loans are a form of government-backed financing, and they're intended specifically for home renovation projects. 

You'll have to make a house your primary residence in order to finance a flip with this type of loan. If you plan on living in the house as you fix it up, though, this is often the best type of loan to get. Since an FHA 203(k) loan is backed by the government, it usually comes with favorable terms.

Cash-Out Refinance: Offered to Established Home Flippers

Once you have a track record of successful single-family house flips, you might be able to get a cash-out refinance loan. 

With this lending option, you pay off an existing loan only to refinance that property with a new loan. The refinance allows you to take any equity you had in the first loan and put it toward the purchase of a new property. Thus, you can acquire multiple houses once you've built up some equity in one or more properties.

Cash-out refinancing is an integral long-term strategy if you want to leverage debt to increase returns.

To learn more about loans, talk to a fix and flip lender in your area.

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