How to Get a Loan to Flip Houses

In today’s real estate business, one of the most lucrative options to make money is flipping houses. “Flipping” a house consists of buying a run-down property below market price, increasing its value by fixing or renovating it and rapidly re-selling it for a quick profit.

Before you get started on house flipping, you need to take a hard look at your finances. You will want to be clear on how much you can afford to invest in a home and how or where to get a home flipping loan. According to tax laws, the interest on money borrowed for business purposes is tax deductible. So, it is feasible to borrow funds. However, financing has become a major problem for house flippers because of recent problems with loan frauds. Many lenders have instituted tighter requirements.

Obviously, you have to make yourself financially attractive as possible to lenders. Income information such as pay slips, rent receipts, tax returns, bank statements, credit card statements; assets such as property, stocks, bonds, motor vehicles; and liabilities including property and personal loans and monthly estimate of expenses are basic requirements. The more information you can give lenders, the more they will entertain you and feel comfortable about lending you money. With all the financial information accounted for, you are now ready to approach potential lenders.

Ways to Finance Flip Acquisitions

Because of the recent spate of house flipping loan scams, most mortgage companies, banks and other lenders have become wary when loaning on a flip. They will research the title chain of the property to determine if the new value is legitimate, sometimes even making property owners produce receipts documenting the improvements done to the house. That way, they can fully understand how much money was spent on the property and how that affects purchase price.

If you can prove that the prior sale was a “distressed sale”, some lenders are willing to forego their seasoning requirements. Lenders require property owners to wait 3-6 months before selling the flip for a higher sales price. A “distressed sale” may include one where the previous owner had to sell quickly due to unforeseen events. However, the flip needs to be worth the new sales price too and the appraiser should justify the “distressed sale” as well the increase in value. Make sure you check with your banker or mortgage broker on loan programs you will qualify. There are lenders who can lend up to 100% of the purchase price and additional 100% on improvements that the borrower estimates he/she will make in the property.

If you need cash for a down payment to pay the seller, you can borrow on your unsecured bank credit line or even your credit cards especially low interest rate credit cards. You will only need the cash for a few months until you can sell the flip so it will not be too expensive.

If you own your own home, you can get a home equity line of credit (HELOC) with your local bank. This is a great way to finance your flip. For starters, interest on HELOC is tax deductible. Home equity lines of credit are usually offered with variable interest rates. With a HELOC, you borrow against whatever equity you have in your house. Equity is the portion of the house that you actually own.

Another cash source is to borrow from hard money lenders (private lenders). A hard money lender does not require any down payment. Another huge advantage of hard money is a quick loan turnaround which is very crucial if you are bidding on a foreclosed property or negotiating with a motivated seller. Banks normally take 30-60 days to close whereas most private lenders can close within 2 weeks. Most of them do not also charge pre-payment penalties or seasoning requirements. However, hard money lenders are collateral-based and generally require priority rights on the flip.

Look at as many home flipping loan offerings as you can and compare. Next, narrow down on loans that provide the best combination of features for your situation. Pick 2 or 3 most suitable offers and discuss them with the respective lenders. They may be willing to negotiate in order to do business with you.

Want to Learn more about Flipping Houses? Order the Home Flipping Guide today!

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