If you’re a house flipper, you can attest to the truth behind this statement — there’s serious money in house flipping if you just do it well. But, unfortunately, just like other businesses and projects, you need to do well and overcome various financial barriers.
Conventional mortgages are ill-suited for an investment property loan. However, since increasing investors are showing interest in flipping houses, a new kind of loan model was made. This loan model is known as fix and flip loan was designed to bridge the gap.
WHAT ARE FIX AND FLIP LOANS?
These are loans with fix and flip loan rates. They are generally real estate loans specifically designed to aid investors who want to buy or renovate their property and sell the same for a profit within 12 to 18 months. Some investors prefer conventional credit lines and loan services to raise funds for these projects. Still, fix and flip credits are considered hard money loans offered by private and individual investors.
The loan proceeds are usually used to buy residential properties that were foreclosed and put up at auction. Parts of the loan are also used to finance the actually lipping’ or upgrade subsequently or renovation of the property, along with other property ownership-associated expenses.
HOW CAN YOU TAKE OUT A FLIX AND FLIP LOAN?
Acquiring a fix and flip loan is easy. However, they may vary from lender to lender. Generally, the steps include the following:
* Go through the pre-approval or qualifying stage wherein a Loan Officer from the lending institution will evaluate your project vis-a-vis their lending criteria. Here, they will consider such factors as property location, prospective flipping price, your proof of funds, the flipper’s financial background, credit, and past experience in the same project.
* Once the pre-qualifying stage is done, next is the underwriting and processing stage, wherein the borrower’s buying and banking history are evaluated along with the property’s value. Finally, if everything goes well, the borrower will proceed to the funding phase.
* During the funding phase, the borrower will sign promissory notes and accomplish paperwork before the money is released. Once these are all complied with, the funds will be disbursed to the account of the borrower.
Securing a fix and flip loan may be easy, but you also need to secure the project’s feasibility, costing, and salability as a borrower. At the end of the day, you’re the one who stands to benefit or suffer loss from such a venture, so being vigilant is a must.
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