All You Need to Know about Hard Money Fix and Flip Loans?

A couple holding a house key

House flipping can be lucrative, but it takes a significant investment to start. Traditional mortgages were intended for permanent or second homes, making them inappropriate for flipping. The need for a new type of loan emerged as investors seeking to make quick profits from selling foreclosed houses increased.

Therefore, financiers created the hard money fix-and-flip loan to meet the needs of lenders. But what are hard money fix and flip loans exactly? Read on to learn more about this financing option to see if it’s the right choice for you.

What Are Hard Money Fix and Flip Loans?

Investors who want to resell or hold a property for future cash flow sometimes employ a hard money fix and flip loan to finance the purchase and renovation of a residential, multifamily, or commercial property.

The loan period is typically between 6 and 18 months, and it is underwritten based on the After Repair Value (ARV) of the property after any necessary repairs have been made. Fix and flip hard money lenders are less concerned with the borrower’s credit and income than traditional lenders are, but they do care about the property’s condition, the loan-to-value ratio, and the borrower’s track record.

Hard money fix and flip loans are attractive to investors because they can be closed much more quickly than traditional bank mortgages. They typically include rehabilitation money and are mostly based on the purchased property. Also, hard money lenders cannot normally limit the number of loans a borrower can have.

Benefits of Fix and Flip Loans

Hard money fix and flip loans offer numerous advantages. If you are wondering if this is the right choice for you, here are some benefits of fix and flip loans that will help you make up your mind.

1. Flexible Agreements

Numerous procedures, policies, and guidelines must be adhered to when applying for a loan from a financial institution. Moreover, there’s always uncertainty involved in the loan approval processes at most institutions.

Fix and flip financing allows for more lenient repayment terms and fewer restrictions. In addition, if you have been turned down for a loan by other financial institutions, a fix and flip loan may still be an option.

2. Rapid Authorization

Fix and flip loans have a far quicker approval time than conventional loans from financial institutions like banks and credit unions. That way, you can actually make the purchase you had planned and outdo the competition. It’s also a chance to capitalize on attractive real estate market pricing.

It’s a lot quicker than dealing with a bank, as all you need to do is provide a realistic strategy for repaying the loan once the renovations are complete. Faster closing times of seven to ten days are normal for fix-and-flip loans after approval, which typically takes a few days.

3. No Early-Prepayment Fee

Banks and other conventional lenders typically impose fees if you prepay a loan. In most cases, this penalty is not included in fix and flip loans, allowing you to repay the lenders quickly after the sale of the property and make the most of your money.

4. Diverse Properties

Banks are quite picky about the properties and conditions they would loan. On the other hand, hard money lenders are eager to put money into properties of any kind, regardless of their current state, if they believe that the home may become a real showpiece with some work.

So, your eligibility for a fix and flip loan is unaffected by the type or condition of the property you plan to buy. You should choose a hard money fix and flip loan if your plan to renovate a house is thorough and likely to yield a profit when sold.

5. Minimize Buyer’s Mortgage Rate  

Lenders who specialize in fix and flip transactions will finance the acquisition, renovation, and sale of a property, enabling you to offer competitive prices to purchasers while still making a profit. In this approach, you might entice a buyer to buy the house by providing a lesser price. You will be able to sell the property quickly.

Important Considerations When Obtaining a Fix and Flip Loan

So, you know what are hard money fix and flip loans and how they can help you. However, there are several other factors to consider when applying for fix and flip financing.

The first step is to confirm that the hard money fix and flip Lender you wish to work with has a history of successfully funding hard money loans in your region. Many hard money lenders are merely brokers who will sell your lead to another lender, increasing the final cost of your loan.

Another factor to consider is the level of leverage required for the project. Many hard money lenders will advertise cheap interest rates, but their loans may only fund 50 to 70 percent of the purchase price, or they may examine the borrower’s income and credit score in the underwriting process.

Other lenders advertise high leverage loans, such as 100% purchase and 100% renovation loans, but fail to disclose that they cap their loan at 70% of the After Repair Value, which is significantly less, or the cost of the loan leaves the borrower with no profit.

The loan term is also extremely crucial to consider. Many hard money lenders will give a test or teaser rate for three months, after which you may be required to pay monthly points or a higher interest rate.

Get Your Hard Monet Fix and Flip Loan with DFW Specialty Lending Today

A fix and flip loan is an excellent alternative for individuals and companies looking to buy and repair a single-family or multifamily property quickly and with some leeway in the repayment terms. DFW Specialty Lending offers quick fix and flip loans, guaranteeing a more lenient underwriting process.

We care more about the property and your capacity to add value than your credit and cash flow. Contact us today to learn more about hard money fix and flip loans and how you can acquire it to kick start your house flipping business.