House flipping has grown in popularity over the last decade or so, and some people have even been able to make a living out of it. If flipping is something you’re interested in, it’s an investment option that just may help you grow your portfolio and bring home a good payday in a relatively short period.
Unfortunately, most individuals assume flipping is something only those with a lot of capital can do. This isn’t the case! There are financial instruments designed to help. A fix and flip loan is one of the simplest methods to get your home flipping project started.
Defining a Fix and Flip Loan
A fix and flip loan is a short-term, higher-interest loan that investors may use to pay both the cost of buying a property and the cost of repairs and improvements. These loans are similar to bridge loans in that they are often utilized in the short-term until a more permanent funding solution is in place.
These short-term loans, often known as hard money or private money loans, are quite different from traditional mortgage loans. They are intended to assist the investor in covering the initial expenses of purchasing and upgrading a property. It is then repaid when the property is sold or refinanced.
What Makes a Fix and Flip Loan Different?
The usage of collateral is one of the most significant distinctions between hard money and fix and flip loans. They usually regard the real estate as collateral and do not spend much time assessing the borrower’s creditworthiness to lend the money. The property alone contains all of the value.
Fix and flip loans are often for a relatively brief period. The majority varies from six months to three years. Flippers who utilize hard money loans often plan to repay the debt using the proceeds from the sale of the property. The sooner they can renovate and sell the home, the sooner they will pay off the debt.
The most significant advantage of obtaining a hard money loan is fast access to cash. Many loans may be approved on the same day and paid back within a week. That is in striking contrast to a conventional mortgage, which may take anywhere between 30 and 45 days to finance.
Why Do You Need to Use This Loan?
A fix and the flip loan may help you obtain the cash you need to purchase your home, as well as the additional money you’ll need to spend on repairs and improvements. If you don’t have enough funds for the project, a fix and flip loan is an excellent option. The majority of these loans have a lower loan to value (LTV) ratio of approximately 70% of the property’s value, with an extra value of 70% of the renovation expenses thrown in. You can also do it. However, these conditions vary from one lender to the next. Some hard money lenders may lend up to 90% of the property’s worth and 90% of the cost of repairs. That provides you, the investor, with money not just to purchase the property but also to renovate it. When you don’t have the money upfront, this is the next best thing.
How Do Fix and Flip Loans Work in Dallas?
The process of qualifying for a fix and flip loan in Dallas is much simpler than for other types of loans. Businesses that provide these loans are more concerned with the collateral for the loan or the real property than with the borrowers. That means that even if you have poor credit, you may get a hard money loan.
Typically, the lender will have an appraiser come out and evaluate the property to ensure that it is worth what the borrower is asking for. After the property has been assessed, the lender will produce a loan considerably less time, typically within the same week. Lenders are less concerned with the borrower’s creditworthiness than they are with the collateral. They understand that if the property sells, the borrowers will pay off the loan in full.
As further incentive for these hard money lenders, they understand that they may profit from this kind of loan even if the borrower fails on their payments. They may take control of the property and sell it for a profit or convert it into another rental property for their portfolio. Even after paying off the debt, you should earn a good profit when selling your flipped home.
Because you are uncertain of what the future will bring, new possibilities may present themselves. Learn as much as you can about hard money lenders and fix and flip loans now so that you are well prepared for when such changes arise. The ability to raise money doesn’t have to be a barrier no matter where you are on your real estate investing path. Because hard money lending has grown into a lucrative industry in its own right, you have more choices than ever.
Are you looking for a reliable mortgage lender in Dallas? New Frontier Financial can be your best option. We provide financial services that can help you achieve goals in your real estate journey. Call us today at (469) 886-8300 to learn more and for us to assist you further!