Obtaining Fix and Flip Loans

Fix and flip loans have become a popular financing option for real estate investors looking to buy, renovate, and resell properties for a profit. These loans are specifically designed for individuals who plan to purchase, rehabilitate and resell distressed properties quickly. However, qualifying for a fix and flip loan can be challenging, especially if you’re a new investor or have a low credit score.

Before applying for a loan for your upcoming fix and flip project, it is important to understand the mechanics of this loan type and the requirements a borrower is likely to have to meet in order to qualify.

How fix and flip loans work

Fix and flip loans differ from traditional mortgages in their loan terms, approval process, funding amount, interest rates, and repayment requirements. It’s important for investors to work with an experienced mortgage broker to carefully consider their financing options and choose the loan that best fits their investment goals and financial situation.

Investors can expect differences from traditional mortgages in the following areas:

• Loan Term: Fix and flip loans typically have shorter loan terms than traditional mortgages, usually ranging from six months to two years. In contrast, traditional mortgages typically have terms of 15 to 30 years.

• Approval Process: The approval process for fix and flip loans is typically faster than that of traditional mortgages. Lenders focus on the property’s value and the borrower’s ability to complete the renovation and sell the property quickly, rather than the borrower’s creditworthiness and ability to make long-term mortgage payments.

• Funding Amount: Fix and flip loans typically offer lower funding amounts than traditional mortgages. While traditional mortgages can provide funding for the full purchase price of a property, fix and flip loans usually only cover up to 80% of the property’s purchase price, with the remaining amount coming from the borrower’s own funds.

• Interest Rates: Fix and flip loans typically have higher interest rates than traditional mortgages, as they are considered riskier investments. However, the interest rates on fix and flip loans may still be lower than those of other types of short-term financing options, such as credit cards or personal loans.

• Repayment: Fix and flip loans require repayment within a short time frame, usually ranging from six months to two years. Traditional mortgages, on the other hand, require regular payments over the course of 15 to 30 years.

5 Requirements to qualify for a fix and flip loan.

Successfully qualifying for a flix and flip loan will often require having a few items in place.  These items include the following:

1. A solid business plan: A fix and flip loan is a short-term loan that requires quick action, so having a solid business plan is crucial. Your business plan should include the property’s purchase price, estimated renovation costs, and the expected resale value. It should also include a timeline for completing the renovation and selling the property. Having a well-thought-out business plan shows the lender that you have a clear understanding of the project’s scope and the ability to execute it successfully.

“… fix and flip loans usually only cover up to 80% of the property’s purchase price …”

2. A good credit score: Having a good credit score is essential for any type of loan, and fix and flip loans are no exception. Lenders typically require a credit score of at least 620, but some may require a score of 680 or higher. A higher credit score not only increases your chances of qualifying for the loan, but it can also result in lower interest rates and better loan terms.

3. Adequate cash reserves: Fix and flip loans are risky investments, and lenders want to ensure that borrowers have adequate cash reserves to cover unexpected expenses or delays. Most lenders require borrowers to have at least six months of cash reserves, which include both personal and business savings. Having a significant amount of cash reserves also shows the lender that you’re financially stable and can handle unexpected expenses that may arise during the renovation process.

4. Relevant experience: While it’s not always a requirement, having relevant experience in real estate investing can increase your chances of qualifying for a fix and flip loan. Lenders want to see that you have a track record of successful real estate investments or that you have experience in the construction or renovation industry. Being a licensed real estate agent with several transactions under your belt can also be an advantage.  If you’re new to real estate investing, consider partnering with someone who has experience and can provide guidance and support.

5. Equity in the property: Lenders typically require borrowers to have some equity in the property they’re purchasing. The amount of equity required varies from lender to lender, but most require borrowers to put down at least 20-30% of the property’s purchase price. Having equity in the property shows the lender that you’re committed to the investment and have a stake in its success.

Intercontinental Ultimate Solutions

Working with a reputable mortgage broker who specializes in fix and flip loans can also help you navigate the loan application process and increase your chances of approval.  At Intercontinental Ultimate Solutions, we specialize in working with property investors to find the right loan solutions for their flix and flip projects.

Because we represent multiple lenders, we have the flexibility and depth of resources to obtain loan approvals in cases where traditional banks are likely to say “no”.

We are licensed to provide mortgage brokerage in the states of Florida, Arizona, California, Colorado, Connecticut, California, Maryland, North Carolina, South Carolina, Texas, Virginia and New Jersey. 

If you are looking to invest in a fix-and-flip project in any of these states, reach out to us today at (561) 717-6826 or via our contact form.