3 Questions About Funding Your Fix And Flip Home
Posted on: 30 April 2020
Flipping a home can be an incredibly lucrative investment, but a lot of your profit will depend on how you get your funding to buy the home. That's why it helps to know how to properly fund your fix and flip home to maximize your profit. Here are some questions that you likely have about securing your funding.
Are There Special Lenders That Provide Rehab Loans?
Many people assume that you need to get a traditional mortgage lender in order to get the financing for a home, which is the process that they are likely familiar with from when they bought their first home. It involves going through your financial and work history, having the house appraised, and getting a mortgage that is for 15 or 30 years. This is the wrong way to go about securing funding for a fix and flip home.
There are specialty lenders that provide rehab loans for this very purpose. They care less about your personal finances and more about the potential money that can be made from fixing and flipping the home for a profit. They are often referred to as hard money lenders, and you won't find them at your local big-name bank.
What Do Hard Money Lenders Look For When Approving A Loan?
A hard money lender is going to look at the potential equity in the home when deciding to give you a loan. They essentially look at what the home was bought for, how much money needs to be spent to improve the home, and what the potential resale value of the home is after flipping it. If for some reason the lender does take over the home after you default on the loan, they'll be set up to make a nice profit off of it as a result, so the risk to them is minimal. Hard money lenders often refer to this formula as their margin of safety, with a higher margin of safety making them more likely to give you the loan.
How Much Money Will You Get For Your Fix And Flip Loan?
One of the nice things about fix and flip loans is that they not only cover the cost of the home, but the money that you need to make repairs as well. This means that you do not need to have the cash on hand to make an investment in a fix and flip loan. If you find a property at the right price and with the right amount of repairs, a fix and flip loan can help you make a significant profit on the deal.
For more information about fix and flip loans, contact a lender.
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