5 Steps to Get Approved For a Fix and Flip Loan

fix and flip loans

Real estate investors who intend to flip homes can benefit from getting fix and flip loans. These short-term loans offer investors an opportunity to make quick profit by fixing up a property and selling it. Many prospective investors may be hesitant to apply for one of these loans their first time. However, a fix and flip loan is actually relatively easy to obtain.

This guide will examine what fix and flip loans are, how they work, and 5 steps to get approved for a fix and flip loan.

What are Fix and Flip Loans?

Fix and flip loans are essentially short-term real estate loans meant to help investors buy and renovate or “fix” properties before selling or “flipping” them at a profit. The entire fix and flip process typically takes 12 to 18 months. However, experienced real estate investors may be able to complete this process faster.

A small percentage of real estate investors use traditional loans and lines of credit as funding for their fix and flip project. However, the vast majority of fix and flip loans that fall under the “hard money loans” category. Such loans are typically offered by private investors or other individuals.

Real estate investors generally use fix and flip loans to buy properties at auctions or following foreclosure. They also use the funds to upgrade or renovate the property.

Why Fix and Flip Loans Are Useful

Fix and Flip loans are attractive for real estate investors for numerous reasons. This includes:

1. They Can Be Obtained Quickly

Fix and flip loans are useful for real estate investors because they offer fast funding for their investment project. This is vital in the real estate industry because investors must have cash-on-hand on short notice to be able to bid on auctioned properties. A traditional loan may take over a month to acquire, but a hard money fix and flip loan can typically be approved in one week.

2. They Are Flexible

Real estate investors can also benefit from the flexibility that fix and flip loans provide. The loan approval process for a hard money loan is nowhere near as strict or rigid as it is for traditional loans offered by banks. This makes hard money fix and fix loans an excellent alternative for real estate investors who do not qualify for traditional loans.

3. They Are Less Risky

All loans carry some form of risk for the borrower. However, this risk can be especially high for traditional home loans that are backed by the borrower’s property and personal credit. Hard money fix and flip loans typically use only the borrower’s property as collateral, making them less risky than traditional home loans.

5 Steps to Get Approved for a Fix and Flip Loan

Prospective real estate investors interested in applying for a fix and flip loan for the first time may be wondering about the approval process. As mentioned earlier, the requirements for a hard money fix and flip loan are generally less strict or rigid when compared with the requirements for a traditional home loan.

You can apply for a fix and flip loan easily using the steps described below.

Step 1: Research and Set Your Budget

The first step involves researching the real estate market and narrowing down your target property. Experienced real estate investors often compare the current value of the property with the value of renovated properties to understand where the potential for high profits exist.

Next, you should set an initial budget based on the cost of performing renovations. This budget should include the property’s current price, the cost of labor, and the cost of materials. Many first time investors may underestimate the cost of renovations, so it may help to get a proper estimate from a contractor during this step.

Step 2: Confirm the Property Status

Prospective real estate investors should then confirm the property’s availability and status with its listing agent. This step is crucial in competitive environments where there are a large number of investors.

A listing agent may not be allowed to tell you a property’s status until a certain time. Therefore, it is best to stay in touch with them until they can offer you the property information you are seeking.

Step 3: Obtain Pre-Approval for the Loan

Next, investors should obtain pre-approval for their upcoming loan. They should speak with their chosen lender and obtain important loan information such as interest rates. They can then use this figure to estimate their target profit on a specific property.

Step 4: Gather Necessary Documents

Investors will then need to focus on gathering the documents to submit alongside their loan application. This mainly includes proof of equity in a property. However, the lender may ask borrowers to submit other documents such as proof of income and run a credit check.

Once these documents have been gathered, the investor can submit a completed loan application with the lender.

Step 5: Underwriting and Closing

The final step typically involves an underwriter who reviews the investor’s documents and credit. Once this is completed, the lender will send the investor a commitment letter describing their loan conditions. The investor may then be asked to provide additional documentation such as property tax information and insurance information.

Once all these steps are completed successfully, the lender will approve the loan and transfer funds to the real estate investors. They are then free to proceed with fixing up the property and selling it.

Why Choose DFW Specialty Lending?

Prospective real estate investors interested in applying for a fix and flip loan can reach out to DFW Specialty Lending. We use a streamlined loan approval process to help investors receive their loan funds as quickly as possible. Please contact us to learn more about our lending services.