The Best Loans for Flipping Houses of 2022
The Best Loans for Flipping Houses of 2022

cash out refinance vs home equity loan

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For many, flipping houses for resale can be a good way to make an income or bulk up their savings. But the process is not as simple as it usually looks on television shows or in marketing sales pitches. In fact, it’s crucial to know every aspect involved in flipping houses, from finding the right property to completing renovations to selling the home to the next buyer. Finding the best loans for flipping houses is one of the first steps to take to ensure the investor has the available funds not only to purchase the property but also to complete any necessary renovations or reconstruction.

  1. BEST OVERALL: Lima One Capital
  2. RUNNER-UP: Kiavi
  3. BEST ONLINE EXPERIENCE: RCN Capital

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What to Consider When Choosing One of the Best Loans for Flipping Houses

When searching for the best loans for flipping houses, it’s important to know what these loans include, how to qualify for them, and what their terms generally are. Although many financial institutions offer loans for flipping houses, the traditional bank down the street may not. Instead, investors should seek out hard money lenders, who specialize in loans for flipping houses.

Coverage Area

When searching for the best loan for flipping houses, investors will need to find the best hard money lenders that service not only the area where the investor lives but also where the property is located. It’s important to find this information first in order to narrow the list of possible hard money lenders. While many hard money lenders have a widespread coverage area, they don’t necessarily have a nationwide service area. As a result, it could take more time to find the best hard money lender to finance a property for flipping, but doing so at the beginning of the process can save a lot of time later.

Loan Amount

When applying for a loan to purchase a property for flipping, hard money loans work differently than traditional home loans. With a traditional home loan, the borrower receives money to purchase the property. With a hard money loan, the borrower receives money to purchase and renovate the property before reselling it. When searching for the best in funding a house flip, it’s not uncommon for hard money lenders to provide a maximum of 90 percent of the property’s purchase price and 100 percent of the renovation costs, provided the entire loan amount does not exceed 85 percent of the “after repair value,” or ARV.

How much a borrower could receive depends on the borrower’s flipping history. For borrowers who are looking to flip their first property, the lender may not provide as much money as it would for borrowers who already have flipped several houses.

Minimum Credit Score

As with any loan, hard money lenders do review borrowers’ credit scores when reviewing a hard money loan application. In general, a minimum credit score of 620 is preferred, but again, lenders offer some wiggle room depending on the borrower’s experience with flipping properties. For borrowers who have a lower credit score but can show they have a good history of flipping houses, the lender is more likely to approve a hard money loan. When preparing to apply for a loan for flipping houses, it’s a good idea for borrowers to take steps to boost their credit score beforehand to improve their odds of approval.

Interest Rate

Interest rates on fix-and-flip loans are typically higher than those on traditional home loans. However, for borrowers experienced in flipping properties, lenders may offer lower interest rates on hard money loans, particularly if the lender has worked with that borrower in the past and the borrower has successfully completed multiple flips. Of course, it’s also important to shop around with hard money lenders to find the best rates. Try to get at least three quotes on loans with the same terms from three different lenders. Because rates fluctuate, it’s a good idea to get these quotes on the same day for a fair comparison.

Approval Time

When applying for a traditional home loan, it’s not uncommon for approval to take between 30 and 45 days, and sometimes even longer. With a fix-and-flip loan, though, approval times are much shorter. In fact, typical approval times range between 1 and 10 days. This benefits the borrower, who can make an offer and close on a property purchase quickly. Fast approval times are possible because lenders evaluate the borrower’s application based on a few simple factors. These include the property’s value and condition, the borrower’s experience in flipping houses, the amount the borrower can provide for a down payment or has in equity, the plans for flipping the property, and the borrower’s ability to pay the loan’s monthly payments.

Loan Length

Unlike traditional mortgages that have loan terms of 15 years or longer, a fix-and-flip bridge loan is a short-term loan, usually around 12 months in length. Given the fact that borrowers often plan to flip a property in a year or less, this term is reasonable. In addition, a fix-and-flip bridge loan usually doesn’t have prepayment penalties, so borrowers can pay it off early if the house is completed and sells before the loan term is up. In the event there are delays with the renovation, lenders may offer the ability to extend the loan for a few months, although an extension could incur an additional fee.

Eligibility Requirements

When applying for a loan for flipping houses, it can be a bit easier to qualify than when applying for a traditional mortgage. That being said, there are still some key factors the hard money lenders will review before handing over the cash. As mentioned before, they will look at the borrower’s credit score, but they also want to know what cash and/or equity the borrower brings to the table. This not only includes a down payment but also the financial resources showing the borrower’s ability to repay the loan. In addition, hard money lenders value the borrower’s experience in flipping houses and are more likely to approve a loan for a borrower who has flipped several properties. In fact, some lenders only work with experienced house flippers.

Down Payment

As with a traditional mortgage, hard money lenders expect borrowers to pay a down payment when applying for a fix-and-flip bridge loan. Typically, the borrower is expected to put down 15 to 20 percent of the purchase price of the property. If the borrower has a high credit score, the amount of the down payment could be lower than what is required for those with a lower credit score. In some cases, the lender may accept equity from another property as the down payment. For instance, if the borrower owns a commercial building with $250,000 in equity in it, the lender may agree to a second mortgage as collateral on the hard money loan.

Loan Type

A hard money loan provides cash for the short term to purchase a property the borrower intends to repair or renovate and then sell to pay off the loan. However, borrowers may consider other types of loans for this purpose, such as home equity loans or HELOCs (home equity lines of credit), or a cash-out refinance. While these also could provide needed cash, there are drawbacks to using these types of loans for flipping houses. First, these types of loans from conventional mortgage lenders may take significantly longer to approve and fund, which can cause delays for house flippers looking for financing. Second, these loans use the borrower’s primary residence as collateral, so there’s greater inherent risk compared with hard money fix-and-flip loans.

Our Top Picks

When researching the best hard money lenders, we looked for lenders with a large coverage area, wide range of loan amounts, and short approval times.

Photo: limaone.com

Why It Made the Cut: Lima One Capital offers all-around excellence because it doesn’t have any glaring weaknesses that would prevent many people, including first-time house flippers, from using its financing services.

With a wide coverage area, Lima One Capital supports both first-time and experienced house flippers, and it offers a multitude of lending options. More options allow borrowers to tailor their loan according to their financial situation, property type, property use, and real estate goals.

Interest rates on Lima One Capital loans vary greatly, and first-time flippers may be on the receiving end of a higher rate than experienced flippers. The company’s minimum credit score requirement of 660 is on the higher end for hard money lenders, but borrowers can still potentially qualify for a loan even if they don’t have a sterling credit history.

In addition, while an online portal is not in and of itself unique, Lima One’s customer dashboard is very intuitive, clearly laid out, and easy to navigate. Also, the company provides free market analysis materials to help borrowers stay up to date on local real estate trends and identify locations that present opportunities for profitable house flips.

Specs

  • Coverage Area: 46 states and Washington, D.C.
  • Loan Amount: $75,000 to $3,000,000
  • Minimum Credit Score: 660
  • Interest Rate: 7.99 percent to 12 percent
  • Approval Time: 10 days
  • Loan Length: 13, 19, or 24 months

Pros

  • Large service area covering 46 states and Washington, D.C.
  • Wide selection of loan types, options, and terms available
  • User-friendly online customer dashboard
  • Detailed market analysis available online for each coverage area

Cons

  • Relatively high minimum credit score requirement of 660

The Best Loans for Flipping Houses Kiavi

Photo: kiavi.com

Why It Made the Cut: Kiavi offers a quick approval process, minimal borrower eligibility requirements, a wide range of loan amounts, and the ability to receive a loan without an appraisal.

With Kiavi, borrowers won’t have to wait long for loan approval thanks to the company’s quick approval time of 1 to 2 days, though the company’s online application process is not overly intuitive. Unlike other hard money lenders, Kiavi could approve a loan on the borrower’s credit score alone. ​​Borrowers do not need to verify their income or liquidity with pay stubs or W-2s to qualify for a loan. In addition, the borrower can save time and money on appraiser fees since Kiavi doesn’t require an appraisal of the property.

Kiavi’s 32-state coverage area is relatively small for larger fix-and-flip lenders, so some interested borrowers may not be able to work with the lender, depending on their location. Additionally, the online application is somewhat user-unfriendly. But for borrowers in the coverage area, the benefits of quick approval based on just a credit score could far outweigh any difficulty navigating the company’s website.

Specs

  • Coverage Area: 32 states and Washington, D.C.
  • Loan Amount: $50,000 to $3,000,000
  • Minimum Credit Score: 640
  • Interest Rate: 6.5 percent and up
  • Approval Time: As little as 1 to 2 days
  • Loan Length: 12, 18, or 24 months

Pros

  • Quick loan approval of 1 to 2 days
  • Loan approval possible with credit score alone
  • No appraisal required

Cons

  • Relatively small service area covering 32 states and Washington, D.C.
  • Online application process can be somewhat user-unfriendly

The Best Loans for Flipping Houses RCN Capital

Photo: rcncapital.com

Why It Made the Cut: RCN Capital has a quick and user-friendly online application process, plus the ability to chat live with actual agents, further adding to a strong online experience.

RCN Capital offers a user-friendly online application process, and it gives borrowers more ways to get expert support and conveniently find answers to their financial questions on its website, which can be especially valuable to first-time house flippers. The company also offers a relatively high maximum loan amount for home flippers who want to take on bigger projects with larger purchase prices.

The company’s approval time of 10 days or more is on the higher end in this space, but the high loan amounts could be worth the wait. RCN Capital’s 12-month loan term is one of the shorter loan terms for this type of purchase, although there is an option to extend the loan term by another 6 months if borrowers require extra time to complete their renovations.

The lender services a large area of the country, which can make it easier for borrowers to get the fix-and-flip bridge loan they need.

Specs

  • Coverage Area: 44 states and Washington, D.C.
  • Loan Amount: $50,000 to $7,500,000
  • Minimum Credit Score: 620
  • Interest Rate: 7.875 percent and up
  • Approval Time: 10 days or more
  • Loan Length: 12 months

Pros

  • Relatively high $7.5 million maximum loan amount
  • Easy online loan application
  • Responsive live chat support

Cons

  • Limited 12-month loan length

Our Verdict

Lima One Capital is our pick for Best Overall because of its wide coverage area, multiple lending options, and support for both first-time and experienced house flippers. We chose Kiavi as the Runner-Up because of its relatively fast approval process, minimum borrower eligibility requirements, and no requirement for an appraisal.

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