Frequently Asked Fix and Flip Loan Questions
By Keran Smith | Category: Blog
1. What if I have bad credit? Can I still get a loan?
Although fix and flip loans aren’t traditional loans, it is often the case that one has to have a minimum credit score of 650. If you have bad credit, you can find many credit repair specialists that help you increase your credit score, in addition to credit partners that you can collaborate with on your first deal.
2. What is a hard money loan & why do people in real estate use it?
A hard money loan is a nontraditional loan issued by a private lender, rather than a bank. People in real estate use it because it allows for buyers to obtain financing for rehab properties that don’t qualify for a traditional mortgage. Since hard money loans are approved based on after-rehab value, financing for the renovation process is generally included in the loan.
Additionally, hard money provides buyers the capital fix and flip a property when they do not necessarily have the funds to do it alone. These loans are typically short term, ranging from 6 to 12 months, which is perfect length for people looking to grow their wealth with real estate.
3. Is a hard money loan the right option for me if I’m new to the field?
No matter what level of expertise you have in real estate, hard money fix and flip loans are a great option to finance any rehab project. Hard money can give you the flexibility not only to purchase the property and fund repairs with one loan, but can help free up your capital to give you the opportunity to work on multiple projects at once. Whether you’re an experienced house flipper or wondering how to get started flipping houses, the benefits that hard money loans provide make going this route to fund your project a wise choice.
4. Why should I use hard money over traditional lending?
Traditional lending programs don’t often allow for the property to be in a distressed state. Although not common, there are some traditional lending programs that can finance the purchase of the property, but they generally do not cover the rehab costs. Hard money however, is used specifically to help finance rehab properties.
5. How do I get pre-qualified?
Talking to your lending company about your needs and their requirements for pre-qualification is the best way to know exactly how you can get pre-qualified. Generally, there are several things that hard money lenders look for that will help you get approved:
- Experience. If you can prove previous success in the fix and flip or buy and hold industry, this could help you secure a loan. If not, bring up other experiences, such as owning a home or having a stable, well-paying job, to add to your capabilities.
- Financials. If you have the capital in the bank that can cover the loan or other unanticipated costs, this is a good sign for lenders. Having substantial savings to put into your fix and flip will show financial stability and skill in money management.
- Discipline. Are you responsible and quick to pay your obligations on time? Do you have experience that shows determination in the face of a challenge? Lenders want to see that you have the character to fulfill your obligations. Proving you are disciplined by being quick to respond to their requests, thorough, and organized with paperwork and estimates will help tremendously.