Fix and Flip – Rehab Loan – Rehab Financing

Fix and Flip – Rehab Loan – Rehab Financing

The number one obstacle for short-term real estate investors is fix and flip funding. Investors need capital to purchase and renovate a house before they can flip the house for a profit. Luckily, there are four fix and flip financing options available to flippers. These fix and flip loans will work for both novice and experienced fix and flippers, real estate investors with existing properties, as well as those without a specific project in mind.

We’re going to explain how to get money to flip a house, including tapping into resources like LendingHome. They’re an online hard money lender that offers fix and flip loans to investors with interest rates between 7% – 12% and no prepayment penalty. You can get prequalified in minutes, see your exact rates, and receive your funding in as little as 15 days.

To get some additional insight into fix and flip loans, we spoke at length with Than Merrill, star of the A&E show “Flip This House” and author of The Real Estate Wholesaling Bible. He’s also CEO of FortuneBuilders and CT Homes, a multi-million dollar real estate businesses. A coach and mentor, he has helped many people who want to fix and flip properties professionally.

Fix and Flip Loans

It costs a lot of money to fix and flip houses. In addition to buying the home, fix and flippers need to pay for repairs, contractor fees, listing and broker fees, holding costs until you sell the home, and more. Merrill discussed three types of financing for flipping houses and we explore a fourth option for fix and flip investors. Here’s each option and when to consider them:

Hard Money Loan / Private Money Loan – Best for experienced or inexperienced flippers who need money quickly. Visit LendingHome to learn more about funding your next fix and flip and to see if you qualify.
Cash Out Refinance – Best for fix and flip investors who have significant equity in an existing investment property or primary residence.
Home Equity Line of Credit – Best for flippers with an owner-occupied home and without a specific project in mind.
Permanent Bank Loans & Online Mortgage – Best for buy-and-hold investors – not suitable for short-term fix and flip investors.
Out of these four fix and flip funding options, the best one for you depends on the type and condition of the property, your experience with real estate investment, and your personal financial situation. Below, we discuss each of these fix and flip loans in more detail for you learn how to get money to flip a house.

Fix and Flip Hard Money Loan / Private Money Loan

Fix and Flip Hard Money Loan / Private Money Loan Summary

Hard Money Loan
Available Financing Up to 90% of Loan-to-Value (LTV),
Up to 80% of After-Repair-Value (ARV)
Loan Term 1 – 3 Years
Time to Approval / Funding 24 Hours for Approval,
10 – 15 Days for Funding
Interest Rates 7% – 12%
Fees 1.5% – 10% Lender Fees,
2% – 5% Closing Costs
Qualifications 550 Minimum Credit Score
(check your credit score for free here)
2 – 3 Past Rehab Projects
Licensed Contractor Help
Where to Get Visit LendingHome
What is a Fix and Flip Hard Money Loan / Private Money Loan?

A private money loan is a short-term loan secured by real estate and used by fix and flippers to purchase and renovate a property. When fix and flip investors refer to private money loans, they’re typically referring to hard money loans. Hard money loans finance the purchase and renovations of an investment property; fix and flip investors typically use a hard money loan to purchase, renovate, and sell a property within 1 year.

Hard money loans are more costly than permanent mortgages. However, hard money loans have lower qualifications for approval, helping fix and flip investors receive approval and funding in as little as 15 days.

The qualifications for approval is why hard money and private money loans are ideal for novice home flippers, says Than Merrill, because hard money lenders care more about the property and its potential value than about the borrower’s experience or financial qualifications.

For more information on whether or not a hard money loan is right for you, check out LendingHome. They’re a national hard money lender that helps experienced and inexperienced fix and flippers finance investment projects. Rates start as low as 7% and prequalification takes minutes:

Visit LendingHome

Fix and Flip Hard Money Loan / Private Money Loan Qualifications

Hard money loans offer comparatively easier qualifications when compared to the other options on our list. For example, hard money lenders will typically require the following:

Credit score: 550+ (check your credit score for free here)
Debt-to-income ratio: 35% – 45%
2 – 3 past rehab projects for DIY projects
Licensed contractor help for inexperienced fix and flippers
However, a credit score of 640 or above is preferred. Borrowers with better credit scores and longer history of successful fix and flip project will be seen as safer and likely qualify for lower rates and fees as well as higher borrowing limits.

Fix and Flip Hard Money Loan / Private Money Loan Terms, Interest Rates, & Fees

Hard money loans have terms, interest rates, costs, and fees that range from:

Term: 1 – 3 years
Time to funding: 15 days
Interest rates: 7% – 12%
Lender fees: 1.5% – 10%
Closing costs 2% – 5%
Repayment: monthly, interest-only payments and principal repayment at the end of the term (typically no prepayment penalty)
Lender fees are taken directly out of the loan. Closing costs are either paid out of pocket or taken directly out of the loan. When you consider the cost and fees along with the interest rates, it’s obvious that hard money loans don’t come cheap.

However, Than Merrill, star of the A&E show “Flip This House” points out that flippers can and should factor this increased cost into the specifics of the project — perhaps bid less for the home or increase the listing price when you sell the home to make up for the high cost of financing.

Also keep in mind that you’re not paying the interest for very long since you can usually flip a home in less than 1 year. To help speed the process, hard money lenders such as LendingHome offer prequalification in as little as 3 minutes and funding within 15 days. This helps fix and flip investors compete with all-cash buyers at real estate auctions.

Fix and Flip Hard Money Loan / Private Money Loan Financing Limits

Hard money loans and private money loans have maximum loan amounts equal to a percentage of a property’s loan-to-value (LTV) ratio or after-repair-value (ARV) ratio. The difference is that hard money loans that use LTV can’t finance renovations while hard money loans that use ARV finance the purchase and renovations of a property.

This is because the LTV ratio is based on a percentage of a property’s current fair market value (FMV) while the ARV ratio is based on a percentage of a property’s expected fair market value (FMV) after the rehab. Hard money loans will typically issue a loan up to:

90% of a property’s loan-to-value (LTV)
80% of a property’s after-repair-value (ARV)
This means that with LTV, a hard money lender will only lend up to 90% of a property’s purchase price. With ARV, hard money rehab loans cover up to 80% of a property’s expected fair market value (FMV) after renovations are complete. Fix and flip investors should expect to therefore cover between 10% – 20% of a fix and flip property’s purchase price.

Who Are Fix and Flip Hard Money Loans / Private Money Loans Right For?

Hard money loans are fix and flip loans that can finance the purchase and renovations of a property. These loans let experienced fix and flippers conduct their own renovations while allowing novice flippers to use a licensed contractor. Regardless of expertise, the approval and funding of a hard money loan can happen in as little as 15 days.

Therefore, hard money rehab loans are right for the following investors:

Experienced flippers with 2 – 3 past rehab projects
First-time investors who will have a licensed contractor help
Fix and flippers who need to compete with all-cash buyers
For specific information on whether or not a hard money loan is right for you, head over to our partners at LendingHome. The national hard money lender offers loans to experienced and inexperienced fix and flip investors with rates starting at 7%. Prequalification takes minutes and financing can happen in as little as 15 days:

Visit LendingHome

Where to Find a Fix-and-Flip Hard Money Loan / Private Money Loan

Hard money loans are issued by hard money lenders. These lenders can either be found online or in-person. Traditional hard money lenders are typically found offline through industry relationships such as referrals from realtors, contractors, or mortgage brokers.

Online hard money lenders, on the other hand, conduct their business completely over the Internet. With these lenders, prequalification takes less than a day and funding can be received in as little as 15 days.

LendingHome is a great example of an online hard money lender. Interest rates start at 7%, monthly payments are interest-only, and there are no prepayment penalties. Check them out today:

Visit LendingHome

Cash Out Refinance Loans for Fix and Flip Funding

Cash Out Refinance Summary

Fix and Flip Cash Out Refinance
Available Financing Up to 75% Loan-to-Value (LTV)
Loan Term 15 – 30 Years
Time to Approval / Funding 30 – 45 Days
Interest Rates 2.99% – 5%
Fees 0% – 3% Lender Fees,
2% – 5% Closing Costs
Qualifications 640 Minimum Credit Score
(Check your credit score for free here.),
45% Maximum Debt-to-Income Ratio,
0 – 6 Months Cash Reserves,
Existing Property With at Least Equity 30%
LendingOne offers real estate investors a way to put their equity to use on new projects. With 30-year fixed rate loans as well as 3, 5, and 7 year ARMs, they offer financing options that will work for most investors. Loans from $60k – $2MM with LTV up to 85%. Prequalifying online takes just a few minutes.

Visit LendingOne

What is a Cash Out Refinance?

A cash out refinance is a strategy where a fix and flip investor refinances an existing property to finance the purchase of a new investment property. A cash out refinance helps fix and flippers extract equity from an existing property by issuing a new loan and paying off the existing mortgage.

The new loan issued on a cash out refinance is considered a “first lien.” This means that any existing liens, such as the original mortgage, must be paid first before you’re able to extract any equity. The difference between the amount of the new loan and the amount of the old mortgage amount is the cash a fix and flip investor can use to finance other investments.

However, there are no restrictions on how a fix and flip investor spends the cash received from a cash out refinance. Fix and flip investors can use a cash out refinance, also known as a “cash out refi,” on an owner-occupied home as well as a non-owner-occupied investment property up to 4 units.

Fix and flippers will typically conduct a cash out refinance to purchase a new property all-cash or cover the down payment and some renovation costs on a property while using a hard money loan to finance the rest of the project.

Fix and Flip Cash Out Refinance Qualifications

The qualifications on a cash out refinance are typically more stringent that with other fix and flip loans. This is because a cash out refinance is typically issued by a traditional bank or mortgage lender.

Specifically, a fix and flipper should expect to provide the following when applying:

Minimum credit score: 640+ (check your credit score for free here)
debt-to-income ratio: 45% or less
Cash reserves: 0 – 6 months
Debt service coverage ratio (DSCR): 1.25 (if refinancing an existing rental property)
2 years personal tax returns (if refinancing an existing rental property)
Finally, all fix and flip investors, whether they’re refinancing an investment property or their primary home, should have at least 30% – 40% equity in the existing property.

LendingOne offers cash out refinance loans with 30-year fixed rate loans as well as 3, 5, and 7 year ARMs. Their loans range from $60k – $2MM with LTV up to 85%. Prequalifying online takes just a few minutes.

Visit LendingOne

Fix and Flip Cash Out Refinance Terms, Interest Rates, & Fees

The terms, interest rates and fees on a cash out refi are as follows:

Term: 15 – 30 years
Time to approval: 30 – 45 days
Interest rates: 2.99% – 5%
Loan origination fees: 3%
Closing costs: 2% – 5%
Repayment: monthly amortized payments
The interest rates on a cash out refi are typically lower than with a traditional mortgage. This is because the borrower already has a track record of good payments. However, since a cash out refinance is more complicated than a regular bank loan, lenders typically charge higher fees.

Since a cash out refi is a first lien, borrowers are required to cover closing costs between 2% – 5% of the existing property’s fair-market-value (FMV). Closing costs are either taken directly out of the loan or paid out of pocket. Once the loan is issued, the lump sum amount is wired directly to a borrower’s bank account. It’s up to the borrower to pay off the existing mortgage.

Fix and Flip Cash Out Refinance Financing Limits

A cash out refinance typically has a maximum loan amount of 75% LTV. This means that a fix and flip investor can get a loan up to 75% of the existing property’s current fair market value (FMV).

However, since cash out refis are regulated by Fannie Mae, loan amounts are based on a property’s number of units. Therefore, the maximum loan amount on a cash out refi is as follows:

1 Unit Property: 75% LTV
2 – 4 Unit Property: 70% LTV
Who is a Cash Out Refinance Right For?

Cash out refinances are only used by fix and flip investors who already have an existing home or investment property. They’re investors who are confronting the question of how to get money to flip a house and compete with all cash buyers without turning to hard money. A cash out refi can only finance up to 75% of the existing property’s loan-to-value (LTV) ratio, therefore, cash out refinances are best for the following types of investors:

Fix and flippers with an existing owner-occupied primary residence
Fix and flippers with an existing non-owner-occupied investment property
Fix and flippers with at least 30% – 40% of equity in an existing property
A cash out refi is also perfect for portfolio investors. This is because portfolio investors typically own an existing property with enough equity to execute a cash out refinance. These portfolio investors typically use a cash out refi as a down payment on a blanket mortgage. These blanket mortgages can finance 4 or more properties under a single loan and are perfect for investors with multiple houses.

Where to Find a Cash Out Refinance

Cash out refinances can be issued by any Fannie Mae-approved mortgage lenders. They can also be issued by lenders specifically catering to real estate investors. Lenders that focus on investors tend to have more flexibility and their familiarity with the investing world allows them to get their clients funded more quickly than traditional mortgage companies. LendingOne, for example, offers 30-year fixed rate loans as well as ARMs and their rates start at around 5.5%.

Visit LendingOne

Fix and Flip Home Equity Line of Credit

Fix and Flip Home Equity Line of Credit Summary

Fix and Flip Home Equity Line of Credit
Available Financing Up to 85% Combined Loan-to-Value (CLTV)
Loan Term 25 – 30 Years
Time to Approval / Funding 30 – 45 Days
Interest Rates 4% – 5% Variable APR
Fees 0% – 2% Lender Fees
Qualifications 640 Minimum Credit Score (check your credit score for free here),
45% Debt-to-Income Ratio,
Existing Home With at Least Equity 30%
What is a Fix and Flip Home Equity Line of Credit?

A home equity line of credit (HELOC) is a home equity loan that works more like a credit card than a conventional loan. Fix and flip investors are issued a line of credit based on the value of their existing home and can use that credit at will over the HELOC’s term. Just like a credit card, interest rates are charged on the amount borrowed until the amount is repaid.

Unlike a cash out refinance, a home equity line of credit (HELOC) can be both a first or second lien, meaning that it can be taken out in addition to your existing mortgage. Also unlike a cash out refi, a HELOC can only be issued on an owner-occupied primary residence. However, there are no restrictions on what a fix and flip investor does with the capital.

A HELOC is broken down into two components:

The draw period
The repayment period
The draw period typically lasts between 5 – 10 years and during this time fix and flip investors can borrow up to the credit limit. The repayment period is typically 20 years and during this time fix and flip investors repay what they borrowed. Interest accrues throughout the entire life of a home equity line of credit, but only on the balance outstanding at any given time, not the entire credit line.

Fix and Flip Home Equity Line of Credit Qualifications

Since a home equity line of credit (HELOC) is a home equity loan, the qualifications for approval are fairly standard. Borrowers should expect to have the following prior to applying:

Credit score: 640+ (you can check your credit score for free here)
Debt-to-income ratio: 45% or less
Existing home with at least 30% equity
Further, HELOCs are only allowed on an owner-occupied primary residence. However, lenders aren’t concerned with what an investor does with the money after it’s been issued.

Fix and Flip Home Equity Line of Credit Terms, Interest Rates, & Fees

A home equity line of credit (HELOC) has terms, interest rates, and fees between:

Term: 25 – 30 years
Time to approval: 30 – 45 days
Interest rates: 4% – 5%
Loan origination fees: 2%
Repayment: Monthly, interest-only for first 5 – 10 years, interest and principle for remaining 15 – 20 years
The overall term of a HELOC is broken down into two phases. The first 5 – 10 years is known as the draw period while the following 20 years is known as the repayment period.

During the draw period, borrowers are free to borrow up to their maximum line of credit and pay interest-only monthly payments. During the repayment period, fix and flip investors stop borrowing and start repaying the principal. Interest accrues over the entire term of the HELOC.

A home equity line of credit (HELOC) typically has an adjustable interest rate that starts between 4% – 5% and resets over time. It’s common for interest rates to increase over the life of a HELOC. Since a HELOC is considered a second mortgage, borrowers aren’t required to pay closing costs.

Fix and Flip Home Equity Line of Credit Financing Limits

A home equity line of credit (HELOC) has a maximum loan amount equal to 85% of a property’s combined loan-to-value ratio. This means the first mortgage and second HELOC combined cannot exceed 85% of a property’s current fair market value.

Who Are Home Equity Lines of Credit Right For?

Home equity lines of credit (HELOCs) are only issued on an owner-occupied primary residence. HELOCs typically can’t be taken out on an investment property. Further, the combined loan-to-value ratio (CLTV) cannot exceed 85% of the home.

Once a home equity line of credit (HELOC) is issued, a fix and flipper can use it to finance any investment purchase. Fix and flippers will typically use the cash from a HELOC to purchase and renovate an investment all-cash or as a down payment on a hard money loan.

The real value in a HELOC, however, is in its credit structure. Since it’s not a loan, interesting fix and flippers can get approved for a home equity line of credit (HELOC) and take their time looking for an opportunity. Interest doesn’t start accruing until an actual draw is made.

Therefore, HELOCs are best for the following investors:

Fix and flip investors with an owner-occupied primary residence
Fix and flip investors with more than 15% home equity
Fix and flippers without a specific project in mind
HELOCs allow fix and flip investors to set a maximum budget and wait for the right opportunity, such as with a foreclosure or non-distressed REO.

Where to Find a Fix and Flip Home Equity Line of Credit

Investing in real estate requires having access to the right capital, and for those with equity in existing primary residence, a HELOC can be a great choice. Home equity lines of credit (HELOC) are available at most national banks and mortgage lenders. Quicken Loans, Chase Bank, Wells Fargo, and more are all available for a HELOC.

Those real estate investors that have already established rental portfolios with significant equity may benefit more from a fix and flip line of credit. This lending product is for professional fix and flip investors doing 5+ projects per year. CoreVest offers a line of credit starting at $1MM and going up $25MM. This product offers experienced flippers with significant equity in an existing portfolio a high degree of flexibility and speed.

Visit CoreVest

Permanent Bank Loan & Online Mortgage

Permanent Bank Loan & Online Mortgage Summary

Permanent Bank Loan & Online Mortgage
Available Financing Up to 96.5% of Loan-to-Value (LTV)
Loan Term 15 – 30 Years
Time to Approval / Funding 30 – 45 Days
Interest Rates 4% – 6%
Fees 0% – 1% Lender Fees,
2% – 5% Closing Costs
Qualifications 640+ Credit Score (check your credit score for free here),
45% Debt-to-Income Ratio
Permanent Bank Loan & Online Mortgage

A permanent bank loan and online mortgage is a long-term conforming loan issued by an FHA- or Fannie Mae-approved lender. Permanent bank loans and online mortgages are characterized by a 15 – 30 year term and are used to purchase long-term owner-occupied primary residences or non-owner-occupied investment properties in good condition. Rehabs aren’t allowed.

Permanent bank loans and online mortgages are therefore not suitable for fix and flip investors. Instead, fix and flippers should rely on hard money loans, cash out refinances, or home equity lines of credit. This is because these options allow an investor to purchase a property short-term.

However, there are a few permanent bank loans and online mortgages that benefit longer-term rehabbers. The FHA 203(k) loan, for example, allows for the owner-occupied purchase and renovations of a primary residence. The Fannie Mae HomeStyle loan, in addition to financing the owner-occupied purchase and renovations of a primary residence, also finances the purchase and renovations of a 1 unit investment property.

Permanent Bank Loan & Online Mortgage Qualifications

The qualifications of a permanent bank loan and online mortgage are very standard. This is because these long-term loan options are typically issued by FHA- or Fannie Mae-approved lenders.

Specifically, permanent bank loans and online mortgages require the following:

Credit score: 640+ (check your credit score for free here)
Debt-to-income ratio: 45% or less
To obtain this information, lenders typically ask for 2 current paystubs, a list of debts, as well as 2 – 6 months bank statements. Further, permanent bank loans and online mortgages can only finance a property in good condition, limiting the effectiveness of the fix and flip loan.

Permanent Bank Loan & Online Mortgage Terms, Interest Rates, & Fees

A permanent investment property loan and online mortgage typically has a term between 15 – 30 years. The approval time and time to funding is usually around 30 – 45 days.

Permanent bank loans and online mortgages typically have the following terms, interest rates, and fees:

Term: 15 – 30 years
Time to funding: 30 – 45 days
Interest rates: 4% – 6%
Lender fees: 0% – 1%
Closing costs: 2% – 5%
Repayment: Monthly amortized payments
You’ll notice that the lender fees and interest rates are lower than some of the other fix and flip loans in this article. This is because the qualifications for approval are more stringent and the loan term longer.

Permanent Bank Loan & Online Mortgage Financing Limits

A permanent loan or online mortgage can typically finance between 80% – 96.5% of a property’s purchase price. The specific amount of financing is dependent on whether a lender is FHA-approved or not.

FHA loans often only require 3.5% as a down payment while Fannie Mae loans typically require up to 20% as a down payment. Remember that permanent bank loans and online mortgages can only finance properties in good condition.

Who Are Permanent Bank Loan & Online Mortgage Right For?

While permanent bank loans and online mortgages great options for long-term buy-and-hold investors and those purchasing rental properties, the terms are too long for a short-term fix and flip investor. Further, these permanent bank loans and online mortgages can’t finance properties in poor condition, limiting the financing options for fix and flippers.

Where to Find a Permanent Bank Loan & Online Mortgage

There are many great long-term permanent mortgage providers. In fact, the U.S. Department of Housing has a list of both FHA-approved lenders as well as Fannie Mae-approved lenders. These online mortgage lenders include such companies as Rocket Mortgage.

However, fix and flippers should instead rely on a lender like LendingHome. They’re a national hard money lender that offers short-term rehab loans with interest-only payments. Rates start as low as 7% and prequalification takes as little as 3 minutes:

Bottom Line: How to Get Money to Flip a House

Flippers know that in order to make money flipping houses you have to have the best fix and flip loan for your project. A hard money loan is good for experienced and inexperienced fix and flippers. A cash out refinance is good for a fix and flipper with an existing home or rental property. A home equity line of credit is good for a fix and flipper that has time to identify a good opportunity. But financing isn’t the whole story. For more ideas to make you next flip a success, read all of our tips from the pros on how to flip a house.

For fix and flippers, we recommend checking out LendingHome. They’re a hard money lender that issues rehab loans up to 75% of a property’s after-repair-value (ARV). Rates start as low as 7% and monthly payments are interest-only. Further, prequalification takes as little as 3 minutes and funding happens in 15 days: