Fix and Flip Loans for Beginners

A picture of two ladders in a construction site with blue overlay to the right of the picture that reads, "Fix and Flip Loans for Beginners".

The fix and flip strategy has become a popular investment model over the past few years. The strategy entails buying a property, renovating it, and then selling it to make a profit on the renovated home. You may be interested in flipping homes, but have you considered what the financing for this strategy looks like? After all, it is not cheap to renovate a home. If you are interested in flipping houses, but you are not sure what financing options are available, keep reading to find out more about fix and flip loans for beginners. 

As a mortgage broker in Colorado Springs, the Reichert Mortgage Team is passionate about assisting our clients with their property endeavors. We have worked with individuals across the state of Colorado to find them the perfect home loan. If you are looking to flip your first property, or you are curious about what fix and flip loans are, then the Reichert Mortgage Team is here to help.

A picture of a home that is being renovated.

What Are Fix and Flip Loans?

Fix and flip loans are short-term loans to help real estate investors buy property, renovate it, and then sell it at a higher price for a profit. These short-term loans are also known as hard money loans and are considered a subset of bridge loans. 

Generally, fix and flip loans have a loan term of about 6 to 18 months and have higher interest rates than a traditional home loan. They are used in the short-term to cover the costs of purchasing an investment property and the renovation. The fix and flip loan is paid back once the property sells or a permanent financing option is put in place.

How Do Fix and Flip Loans Work?

Being approved for a fix and flip loan is a much easier process than obtaining a traditional home loan. Loan lenders are not as concerned about the borrower’s credit because the property is collateral for the loan. Plus, when the property sells, the borrower of the fix and flip loan will be able to pay back the loan completely. 

Therefore, the risk falls on the borrower of the fix and flip loan. It is up to the borrower to renovate the property and sell the home to make a profit and pay back the loan.

The Benefits of Fix and Flip Loans

The fix and flip strategy can be extremely lucrative. There are many benefits for investors looking to qualify for a fix and flip loan to renovate a property, including:

  • Fast approval

As compared to a traditional home loan, fix and flip loans are extremely fast to obtain. The lender is less concerned about creditworthiness than the borrower renovating the property to sell it. In general, fix and flip loans take a few days to be approved and have fast closing periods.

  • Flexible terms

Fix and flip loans are much more flexible as compared to traditional home loans. Hard money loans, or fix and flip loans, do not have to go through the same processes and requirements as banks or credit unions would need to follow with a traditional home loan.

  • Less risk

A traditional home loan is backed by your credit and your home. With a fix and flip loan, only your investment property backs the loan. If you default on the loan, your investment property is the collateral, so you will not lose your actual home like you would with a traditional home loan.

Fix and Flip Loans vs. Traditional Home Loans

A traditional home loan, such as a conventional home loan, is a lot different from a fix and flip loan. While they are both real estate loans, they vary in many ways.

Loan Terms

Hard money, or fix and flip loans, have a much shorter loan term than traditional home loans. Fix and flip loans generally have a loan term of 6 to 18 months while a traditional home loan can have a loan period of 15 to 30 years. 

Interest Rates

Interest rates for fix and flip loans are a lot higher than traditional home loans. Fix and flip loans usually have an interest rate between 12 to 18 percent, and traditional home loans usually have an interest rate of 2 to 4 percent. 

Collateral

As mentioned above, the collateral for both these types of loans are very different. For fix and flip loans, the investment property is the collateral while the collateral for traditional home loans is the borrower’s credit and actual home.

Qualify for a Fix and Flip Loan with the Reichert Mortgage Team

The fix and flip strategy is becoming more and more popular. If you are thinking about flipping your first property, it is crucial to understand how fix and flip loans work, and how these types of loans vary from traditional home loans. At the Reichert Mortgage Team, we are knowledgeable about both fix and flip loans as well as traditional home loans. We are happy to discuss more about real estate loans with you and answer any questions you may have. If you are ready to begin your journey of flipping your first house, contact the Reichert Mortgage Team today so we can help you get started!

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