Flipping houses can be an exciting and profitable venture for those with a keen eye for real estate opportunities. However, finding suitable financing options can be a daunting task, especially when dealing with traditional lenders who may require lengthy approval processes and strict requirements. That's where hard money loans come in, providing real estate investors a fast and flexible way to fund their projects.
But with so many lenders and loan options available, it can be challenging to determine which hard money loan is best for your house flipping needs. In this blog, we will delve deeper into the world of hard money loans for flipping houses, exploring the top lenders, loan types, and tips for securing the best loan for your project.
This guide will help you navigate the complex world of hard money loans and maximize your real estate investment potential, whether you're a seasoned investor or a newcomer to the house-flipping game.
Home flipping has become a popular way to earn quick profits in the real estate industry. However, this venture often requires a significant amount of capital upfront, which can be difficult to come by for many people. This is where home-flipping loans come into play.
Home flipping loans are short-term loans that house flippers can use to purchase and renovate an investment property. These loans are specifically designed for the purpose of fixing and flipping a house, and they come with their own set of advantages and disadvantages.
Home flipping loans can provide quick access to funds needed to purchase an investment property. Unlike traditional mortgage loans, which can take several weeks or even months to secure financing, home-flipping loans can be approved in as little as a few days.
There are several loan options available for house flippers, including private lenders, credit unions, and other financial institutions. These loans can vary in terms of the loan term, interest rate, and loan amount, giving house flippers more flexibility in securing financing that fits their personal finances.
Home flipping loans can offer higher loan amounts than personal loans or credit cards. This is because these loans are secured against the investment property, rather than the borrower's personal credit history.
Unlike traditional mortgage loans, which require monthly mortgage payments, home flipping loans are typically interest-only loans. This means that house flippers only need to make interest payments during the loan term, and they can pay off the loan in full when the house is sold.
Home flipping loans typically have higher interest rates than traditional mortgage loans. This is because these loans are considered a higher risk due to the short-term nature of the investment and the potential for house flippers to lose money on the property.
Home flipping loans have short loan terms, typically ranging from 6 to 12 months. This means that house flippers need to complete the renovation and sale of the property within a short timeframe or risk defaulting on the loan.
Most financial institutions require a minimum credit score for approval of home-flipping loans. This can make it difficult for those with poor credit history to secure financing.
Home flipping loans require house flippers to pay for renovation costs out of their own pocket. This can add to the overall cost of the project, making it more difficult to earn a profit.
Home flipping is a risky business, and there is always the potential for house flippers to lose money on their investment. If the house doesn't sell for the desired price, or if unexpected issues arise during the renovation process, house flippers may end up losing money on the project.
Now that we have discussed the pros and cons of home flipping loans, let's explore another popular option for financing house flips: Hard Money Loans.
Hard money loans are asset-based, short-term loans that are secured by real estate. These loans are typically used by real estate investors who need quick access to cash to fund a house flip or other real estate investment.
These loans are called "hard money" because they are secured by a hard asset, such as real estate, rather than by the borrower's credit score or income. Hard money loans are often easier to qualify for compared to conventional loans, but they come with higher interest rates and fees.
There are several different types of hard money loans, each with its own set of terms and requirements. Here are some of the most common types:
When borrowers apply for a hard money loan, the lender will evaluate the property's value and condition to determine the loan amount. The loan amount is usually a percentage of the property's purchase price or appraised value as well as the borrower's ability to repay the loan.. Borrowers typically need to provide a down payment, which is usually 20% to 30% of the property's purchase price.
Hard money loans typically have higher interest rates than conventional loans, often ranging from 7% to 25%. Hard money loans often have higher origination fees and closing costs, which can be 2% to 10% of the loan amount. Borrowers are also responsible for paying property taxes, homeowners insurance, and monthly interest payments. Hard money loans are usually short-term loans, with terms ranging from a few months to a few years.
Many real estate investors turn to hard money lenders for loans that can help them purchase and renovate properties. However, not all hard money lenders are created equal. It's important to research lenders and choose the one that is the best fit for your needs.
Here are some factors to consider when choosing a hard money lender for your house-flipping loan:
It's important to choose a hard money lender with a good reputation in the market. Look for lenders who have been in business for a long time and who have a track record of providing good customer service and fair lending terms. You can check online reviews and ratings to get an idea of a lender's reputation.
Make sure you understand the interest rates and any additional fees, such as origination fees and closing costs, before choosing a lender. Hard money loans are known for their high-interest rates and fees, which can be as much as 15% to 20% per annum.
Before you choose a hard money lender, make sure you compare their interest rates and fees with those of other lenders in the market. You want to ensure that the interest rates and fees are reasonable and that they won't eat up all your profits from the project.
Hard money lenders offer short-term loans, usually between six months and two years. However, the terms of the loan can vary from lender to lender. Make sure you understand the terms of the loan, including the repayment schedule, prepayment penalties, and other fees. Look for a lender that offers flexible loan terms that align with your project timeline.
The loan-to-value (LTV) ratio is the amount of the loan compared to the value of the property. Hard money lenders typically lend up to 70% to 80% of the property's value. If you are a new house flipper, you may need to find a lender that offers a higher LTV ratio. This will give you more flexibility and a better chance of getting the funding you need to complete your project.
Hard money lenders can often approve loans quickly, but the process may be more involved than with traditional mortgages. Look for a lender with a straightforward approval process and a track record of timely closings.
Good customer service is essential when it comes to hard money lending. You want a lender who is responsive and easy to work with. Look for lenders who have a dedicated team to help you with the loan process and who can answer any questions you may have.
One of the biggest advantages of hard money lending is the speed at which you can get funding. Make sure you choose a lender who can provide funding quickly, ideally within a few days or weeks. This will allow you to move quickly on a good investment opportunity.
Kiavi (formerly known as Lending Home) is a popular hard money lender in the US that provides capital to real estate investors. Borrowers can borrow money for short-term loans, specifically for fix and flip loans or financing for flips, and long-term loans, such as rental loans.
The rates for the fix and flip loans start at 6.95%, and borrowers can get up to 90% of the home's purchase price and up to 75% of the after-repair value. On the other hand, the interest rates for rental loans begin at 6.875%, and borrowers can get up to 80% LTV.
Kiavi's digital platform uses data to provide insights and empower investors to make more informed lending decisions. One of the best features of Kiavi lending is that they don't do income or employment verification, and there is no asset verification, which saves time and money for the borrowers. Moreover, they don't require an appraisal for bridge loans, but they do require appraisals for rental loans.
However, investors must have $50,000 upfront to open an account, which is ten times higher than the industry standard. Additionally, Kiavi has a default rate of over 2%, which is higher than the average default rate for residential fix and flip loans.
Overall, Kiavi offers real estate investors a flexible and personalized solution with its attractive features. Investors who don't have the capital upfront or don't want to pay higher interest may opt for traditional mortgage loans or bank loans.
Nonetheless, Kiavi provides an excellent opportunity for those who want to borrow money for their fix and flip or rental properties, with short and long-term loans available.
New Silver is a US-based fintech that offers short-term loans for the "fix and flip" real estate sector. Their newly created "DeFi Securitized Mortgage Fund" provides accredited investors with access to their blockchain-securitized loan portfolio.
The fund invests in short-term mortgages secured by US residential investment properties and offers a target return of 17-22% net of fees. Investors receive quarterly cash distributions and may redeem their investment after a 1-year lockup period.
New Silver does not charge upfront fees but does charge an annual management fee of 1% and a performance fee of 20% of any cash flow after investors receive a 14% preferred return. The minimum investment is $100,000, and the fund is only open to accredited investors under SEC Reg D.
The underlying blockchain technology is still new, and there is a short track record, but New Silver as a company is co-invested in the underlying loan pool, providing "skin in the game" for investors.
Lima One Capital is a private lender that offers short-term loans for flipping houses, with a focus on first-time investors. They require a minimum credit score of 660, but no previous investing experience is needed. Their interest rate range from 7.5% to 9.75% APR, with upfront fees of 1% to 2.25% of the loan amount.
While their maximum loan amount is $3 million, the financed property can't have significant rehab needs, such as structural damage repair. Additionally, the loan is limited to 70% of the after-repair value (ARV) of the property, which means investors may need to pay for a larger proportion of the repairs out of pocket.
For those interested in borrowing money to flip a house, Lima One Capital may be a good option. Their rates and terms are competitive with other private lenders, and they offer a fix-and-flip loan for investors without prior experience.
However, investors should be aware that they will need to pay interest and fees on the loan and provide a down payment. It's important to carefully consider whether borrowing money for a house flip is the right decision for your financial situation and to explore other options such as a home equity loan, personal loan, or bank loan.
Do Hard Money is a private lender that specializes in short-term loans for real estate investors who want to flip houses. With flexible lending guidelines, investors can borrow money with as little as $5,000 and can get 100% financing. Interest rates start at 1.25% per month and loans have a term of up to 12 months. The platform offers various types of loans, including residential rehab loans, fix and flip loans, foreclosure loans, rental property loans, and more.
Do Hard Money also offers resources to help investors find properties to purchase and learn about the house-flipping industry. The platform has a resource called Investor’s Edge for those who are looking for off-market properties. Investors can use the Advanced Deal Analyzer tool to find out the profitability, risk, and estimated cash close on any property they’re interested in. They can also learn how to calculate the ARV on a home through a certification course and training video.
While Do Hard Money has received many 5-star ratings from the BBB, it has also received criticisms from Yelp users who complain about the upfront cost of $3,000, the difficulty in getting loans, and the longer-than-expected process. Borrowers should also be aware of appraisal fees and the need for strong credit in order to qualify for a loan.
ABL is a financial institution that specializes in providing short-term loans to small business owners, real estate investors, and commercial contractors. With operations in 24 states across the US, ABL offers a variety of loans, including fix and flip loans, new construction loans, cash-out refinancing, and rental property loans. Borrowers can receive loan pre-approval within 24 hours and funding in just a few days.
To qualify, a minimum credit score of 660 is typically required, and interest rates start at 10% for most 12-month loans. ABL also offers a revolving line of credit and rental property loans with longer loan terms. Borrowers must pay fees and demonstrate monthly income to qualify, while online lenders offer similar personal finance products.
ABL's loans may be helpful for those seeking to flip a house, but borrowers should consider how loans may impact their retirement savings.
Hard money loans provide a quick and reliable way to secure funds for your house-flipping project, and there are several top lenders to choose from. However, finding the right property to flip is equally important, and that's where Property Leads comes in.
With Property Leads, investors and wholesalers can access a steady stream of high-quality real estate leads, enabling them to find the best deals in the market. So if you're looking to flip houses and need financing and reliable leads, consider exploring your options with hard money lenders and Property Leads.
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Sheridan, WY 82801
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