The Key Takeaways
- For those looking to buy a property and make a profit in the future, a fix-and-flip loan can be a short-term financing solution.
- Lenders often require that borrowers have a lower loan-to-value (LTV) for a house flipping loan than they would for a mortgage on their home. It means that a more significant down payment is required.
- By offering collateral or finding a guarantor, a borrower can obtain a fix-and-flip loan without paying any money down.
- You can finance a house flipping project with a private investor or a home equity agreement.
You may be new to house flipping and have limited funds. It might be possible to get a loan without any money down. This article will discuss some of the available options and other fix-and-flip financing options.
Here’s a quick overview of fix-and-flip loan options
Real estate investors can use a fix and flip loan to finance short-term projects such as renovating, fixing and then flipping a property quickly to make a profit. The loan allows borrowers to obtain the capital they need to buy the home.
Lenders will differ in terms of fix-and-flip loans. The following factors may affect the qualification terms:
- Your relationship with the lender
- Your experience. A fix-and-flip loan is a first-time fixed-and-flip loan that may be less favourable due to perceived higher risk to the lender.
- The market in which you are buying
- The nature of the renovation proposed.
- After renovating the house, what is your home expected to be worth?
Fixed-and-flip loans typically have a lower ratio of loan-to-value
Fix-and-flip loans are often seen as risky by lenders. Lenders are less conservative about the loan-to-value (LTV) they provide borrowers to hedge against this risk. LTV is the ratio of the loan amount that a lender provides to the appraised property value they intend to buy with the loan.
The LTV for a conventional mortgage is typically around 80%. The borrower must provide the 20% remaining to buy the property in the form of a down payment. A fix-and-flip loan may have a maximum LTV ratio of 65-70%. It means that the borrower will need to contribute 30-35% of the property’s value as a downpayment.
You are eligible for a fix-and-flip loan with no down payment.
Because these loans have lower LTV lenders, it is more difficult to obtain a fix-and-flip loan without money down. You can still get the extra cash to pay the down payment by offering additional collateral (other than fix-and-flip properties) as a security interest. It would help if you had collateral that is equal to or greater in value than the amount of the down payment money. Examples include:
- Another real estate, such as your primary residence
- Investment accounts
- Vehicles
- Any other item that is of high value
A borrower can find someone who will guarantee the loan. A guarantor agrees to pay the borrower’s debt in the event of default on the fix and flip loan.
Alternatives to a Fix-and-Flip Loan that do not require money down
Other financing options than a fix-and-flip loan may be available to borrowers who wish to finance their project.
Locate a private investor
A private investor may be an option for house flippers who need help getting a fixed and flip loan. Private investors provide the capital necessary to finance the house-flipping venture. Although you can avoid working with a lender by partnering with one, it may cause additional problems. You may require legal assistance to create an agreement that outlines your rights and obligations and those of your investor. It can lead to you losing some control over the project and your decision-making power.
Get a Home Equity Agreement
A home equity agreement (HEA) is another option for house flippers who own a home and have equity. A home equity agreement (HEA) allows you to trade your interest in the property to a provider for cash proceeds. The value of your home will determine the amount you can receive and how much equity you have.
There are many benefits to using funds from a home-equity agreement:
- There are no additional loans, meaning there are no monthly principal or interest payments.
- Flexible repayment
- Lower credit score requirements than traditional loans
A HEA’s term is – typically, it is ten years. It gives you a few options to repay the provider. The first is to sell your home and pay the provider the equity percentage. Another option is to purchase the ownership interest at any point during the agreement. The HEA provider will need to appraise your home’s market value to determine the purchase amount based on your ownership interest.
Commercial Lending USA will help you get a home equity contract.
You must carefully consider your financial and business plans before choosing a financing option for your next house-flipping venture. There are many options for getting a fix and flip loan without money down. These include increasing your collateral offer or finding a guarantor. Alternatives to fix-and-flip loans include working with a private investor or a HEA.
Contact us today to discuss a home equity arrangement for your next fix-and-flip project.
