Fix and Flip Loans FAQ
What is a fix and flip loan?
Fix and flip loans refer to short-term real estate loans meant for investors with the intention of buying, rehabilitating, and selling them in the shortest time as possible in order to gain maximum profit. Such loans cover the purchase cost, renovation cost, and construction cost. Repayment falls within 12 to 36 months. This type of loan is provided to investors that are going to undertake projects with fast and easy turnaround.
How do I qualify for a fix and flip loan in California?
Qualifying for a fix-and-flip loan depends less on your credit score and more on the post-renovation value of the property. Lenders look at the resale value, not your credit history, which makes this option available to investors with an extensive project plan but perhaps not a spotless credit score.
What are the advantages of opting for a Fix and Flip Loan over conventional loans?
The key advantages are as follows:
- Speedy Funding: While traditional loans take many months to get processed, fix and flip loans are usually funded within weeks.
- Flexible Underwriting: These loans have lenient qualifying criteria and don’t demand lengthy financial history.
- No Prepayment Penalties: If you sell the property before expected, you may be in a position to return the loan early with no additional charges.
What are the cons of fix and flip loans?
Even with all its pros, there are some drawbacks to discuss:
- High Interest Rates: The interest rates for these loans range from 12% to 15%, well above a conventional home loan rate.
- Short Repayment Terms: It must be repaid within a fixed, short term, usually within 12 to 36 months. For the most part, no extension is considered.
- Experience: A person who is starting fresh in property flipping might not get qualified because a borrower deals with those who have an evident track record.
What should I do before applying for a fix and flip loan?
Before diving into the application process, ensure you:
- Assess All Costs: Calculate the total investment needed, including the purchase price and renovation costs.
- Locate the Right Lender: Search for those lenders who have dealt more with fix-and-flip loans and who can offer better terms.
- Plan the Renovation: Have a very specific and detailed plan regarding the renovation to present to potential lenders.
Are there any special requirements for fix and flip loans in Los Angeles?
As in most parts of the country, in Los Angeles, the ARV of a property after repairs is the main thing. The lenders will need to be comfortable with the ARV that justifies the loan amount. Again, being comfortable with the local market trend and having a renovation team ready can go a long way too.
How does the application process work for a fix and flip loan?
It generally starts with the following:
- Property Identification: The very first thing you need to do is get a definite idea of the location where your target property is that you intend to flip and sell.
- Filing for a Loan: You need to file an application accompanied by an in-depth plan regarding what exactly you will carry out with the renovation.
- Approval and Funding: If accepted, the funding can be very quick, allowing you to enter the operation with the least delay possible.
