Fix and Flip Loans for New Investors

Here’s the complete guide on how to get fix and flip loans for new investors.

Most real estate investment tactics seem to require extensive experience, capital, and great credit. However, there are options for new investors with no experience. Everyone has to start somewhere and fix and flip loans are the best route to building your real estate portfolio.

What Are Fix and Flip Loans?

Fix and flip loans are a form of short term financing to help investors cover the cost of purchasing and renovating a home. They tend to have shorter terms than traditional mortgage financing.

Compared to conventional financing, these type of loans have different requirements to qualify. Making it easier and faster to secure the necessary funds for fixing and flipping homes.

There are many advantages that real estate investors have when purchasing investment properties using fix and flip loans. Which is that they don’t need to provide tax returns or any personal income documentation to qualify.

A traditional lender, such as a bank, won’t allow you to purchase distressed properties that aren’t livable. On the other hand, fix and flip lenders specialize in just that.

Types of Fix and Flip Loans

There are many options for fix and flip loans. Determining which loan is right for you requires considering your credit score, available cash reserves (capital), experience, and debt-to-income ratio. For example, if you have collateral you can put up for financing, you may have more options.

Collateral does not have to come in the form of real estate, which we’ll discuss later. However, if you have little cash reserves, no collateral, but have a promising property, other options are at your disposal.

Here are the most common options.

Hard Money Loans

Hard money loans are known for their fast closings. Usually funding within 7-10 days. Sometimes within 48 hours depending on which state the property is located in and which hard money lender you go with. These are typically asset based loans which are approved based on the property’s after-repaired value.

Loan term lengths are usually 3-24 months, with no pre-payment penalties. However, every loan is different, so make sure to ask if there’s a pre-payment penalty. The emphasis is on the property, not your income. Securing financing may be easier, but with higher interest rates compared to conventional mortgage financing.

Depending on the lender, an appraisal may not be required. This however will depend on your credit score and which type of hard money loan you qualify for.

Home Equity Line of Credit

If you have equity in your primary residence, meaning your home value exceeds your outstanding mortgage balance, you may be able to borrow from it. A home equity line of credit (HELOC) allows you to draw from it as you need funds to purchase and then renovate the property.

A home equity line of credit is cheaper than a hard money loan in terms of interest rates. However, these loans require a good credit score, proof of stable income, lots of paperwork and close within 45-60 days. These type of loans are great if you already own the property and want to rehab and flip it.

Seller Financing

Some sellers who own their property outright, will allow you to purchase their property and finance directly from them. Allowing you access to the property while you make payments to them as you would to a bank.

Typically, there should still be a written contract with agreed upon monthly payment amounts and set loan terms to determine when the loan matures. The terms are usually 12-36 months and interest rates tend to be similar to market rates.

401k Loans

Some retirement plans have a loan provision allowing you to borrow against your retirement savings. In most cases, you must repay the loan with interest within five years, but the full amount becomes due immediately if you leave your job.

Most retirement plans allow real estate investors to borrow up to 50% of their balance or $50,000, whichever is less. Additionally, you don’t have to disclose how you’ll use the funds.

Personal Loans

If you have a good credit score and need less than $100,000, you may consider a personal loan. These loans are typically unsecured, so you’ll need excellent credit to qualify. Like 401k loans or home equity loans, you don’t have to disclose how you’ll use the funds.

Do Banks Offer Fix and Flip Loans for New Investors?

Many new investors wonder if they can go to a traditional bank to get a fix and flip loan. Unfortunately, most banks do not extend fix and flip loans for new investors. Here’s why.

Uninhabitable Living Conditions

Most fix and flip investors purchase distressed properties which are not livable. They tend to have collapsed roofs, inadequate plumbing, exposure to toxic substances such as asbestos, heating issues or just in need of severe renovation.

Bank financing usually requires that the home is livable and passes the traditional appraisal requirements, which distressed investment properties don’t.

Strict loan qualification requirements

Traditional financing generally requires an excellent credit report, a low debt-to-income ratio, and proof of stable income. New real estate investors may have a high DTI when starting their business and may even have lower credit scores because of it.

Long Loan Approval Times

Traditional mortgage loan approval can take 30 – 60 days, which can cause real estate investors to lose the deal. Fix and flip investors compete with cash buyers and investors who use hard money loans, therefore closing time is very important.

Fix and Flip Loan Requirements

Fix and flip loan requirements vary by lender and loan type, but there are some commonalities in what’s required.

For lenders with favorable loan terms, you’ll need a credit score of 680 or higher. The higher the credit score, the lower the interest rate. With a 680+ business FICO score, you can expect no appraisals, lower interest rates and 2-10 day closings. Typically there will be no focus on the borrower’s income, making it easier to get approved.

New investors with 600+ credit scores can still get a fix and flip with no credit check. This will depend on the state the property is located in. For example, we offer fix and flip loans in Florida, Texas, Georgia, Tennessee, Kansas, Missouri, and South Carolina with no minimum credit score.

Investors may need a small down payment to purchase the property, but can borrow up to 100% of the rehab costs. Typically, expect the down payment to be a minimum of 10% depending on your credit score and state the property is located in.