Financing Your House Flipping Dreams
TV shows about flipping homes have become a staple of reality TV, so it’s no surprise that interest in fix and flip is on the rise. If you’ve been interested in learning more about flipping houses but you aren’t sure where to start, read on for information on acquiring financing to make your house flipping dreams a reality.
Home Equity Line of Credit
Getting a loan to fix and flip a house is not nearly the same as applying for a new home mortgage. One way to break into the field is by opening a home equity line of credit against your own home. You need to have a minimum of 30% available equity based on the current value of the home. In exchange, you are issued a line of credit up to 85% of the home’s value.
The loan works like a credit card; you’ll be able to withdraw funds up to the limit and the interest is only on the outstanding amount. While there is risk in using your residence as collateral, the biggest appeal of this type of loan is the low, single-digit interest rates on offer.
Hard Money Loan
It can be difficult to get a hard money loan for fix and flip at first, but once you have a couple of houses under your belt you may want to look at these short-term loans. Hard money loans allow you to pounce on potential fixer-uppers because you can apply in minutes and have the funding within days. These loans from private lenders use the property you’re buying as collateral and usually come due within a year.
In exchange for the quick turnaround and avoiding putting your own property as collateral, you’ll be paying a higher interest rate. From the high single digits to mid-teens, you’ll also pay points on the loan. The upside, besides the time, is that the loan is paid quickly. With a good flip, you’ll pay back the loan in full and still clear a huge profit.
If you don’t have the money right now to buy a house that’s closing, a bridge loan is a temporary loan. It can help you buy your next property while your last one is still closing, or you can use it to pay off a hard money loan while your fix and flip is on the market.
These are only three options for funding your fix and flip dreams, but with these potential tools in your box, you’ll be ready to start fixing your first flip.