House flipping is a type of real estate investment strategy in which an investor buys a house to sell it at a profitable price later. House flipping can be a profitable business, but renovating houses can be costly. Transactions also tend to take long. According to recent research, home flippers in the first quarter of 2021 saw about a 159-day turnaround to complete the transaction, which is the lowest we’ve seen since the third quarter of 2013. The chances are that you’ll need a loan if you want to survive in the industry. Here’s a guide to loan programs for house flippers.
1. Hard Money Loans
A hard money loan is one of the best loan programs for house flippers. This loan is easy to secure because lenders don’t look at your credit score while giving you hard money loans. Hard money loans are secured by real property and their approval time is short because no underwriting is needed. However, its original fees and interest rates are higher than conventional mortgage rates.
2. Traditional Mortgage Loans
There are various traditional mortgage loans you can apply for based on the level of your house flipping business. These include:
- Constructions Loans: If you want to build a house from scratch, construction loans are the best choice. A construction loan will be converted into a traditional loan if you live in the house after construction. Construction loans are tougher to get than traditional mortgages. However, a bank will fund up to 90% of your construction project if the loan is approved.
- Renovation Loans: Another common traditional mortgage loan is renovation loans. They are used to fund repairs, improvements, and updates. These loans have normal mortgage rates and appraisals.
3. Personal Loans
Personal loans involve borrowing loans for personal use. No collateral is needed to secure personal loans. The loans are quick and easy to process. Nevertheless, the interest rates on personal loans can be very high. The terms of the loan are dependent on your income and credit history. The lender will use this information to determine your ability to pay the loan, interest rate, and repayment period.
Keeping up to date with various financing programs for real estate projects will help you determine which loan programs are best for you. Select the loan program that is more feasible to your project.