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What Is A House-Flipping Loan?

Loans exist for almost every purpose, from business loans to cash flow loans and everthing in between. These loans are so specific because lenders have to evaluate the risks associated with each endeavor, and house flipping is no exception. Traditional banks see house flipping as a high-risk because of the experience, uncertainty and extra costs. The unpredictability of the housing market doesn’t help either.

To fix this gap in the lending world commercial lenders utilizing private equity found a way to address this risk to offer fix and flip loans also known as short term bridge loans.  These loans are specifically intended to cover the purchase and the renovation of a property that will be resold or refinanced for rental.  Fix and flip loans have become sophisticated in the past few years. Private investors and large funds have become the primary sources for these short-term loans and have replaced hard money 

House-flipping loan programs, fix and flip and fix to rent loans don’t rely on traditional underwriting, verified income or other standard loan factors, so they are more available to first time investors as well as experienced investors. Instead, lenders evaluate the property, the likelihood of a successful renovation, and the comparative advantages of surrounding properties in the neighborhood.

Here Are Some Of The Ways House-Flipping Loans Differ From Other Types of Loans?

House flipping loans are also called bridge loans or short-term loans, which sets them apart from traditional mortgages. Here are some of the key differences between conventional mortgages and fix and flip loans.

• Term: Traditional mortgage like an FHA Loan or VA Loan loans have 15 or 30-year term, where a house-flipping or bridge loan is a short-term loan that can have adjusted terms based on the individual lender and their underwriting. Typical terms for flipping a house is 12, 24 or 36 months. Where many traditional mortgages have penalties for early repayment, house-flipping loans have no pre-payment penalty allowing you to sell or refinance as quickly as possible into a lower rate loan. The faster you refinance or sell, the more money you’ll make.
  
  
• Interest rates: FHA, Conventional and Non QM or residential specialty mortgage loans generally have the lowest interest rates in the market. Current market forces, the rate of interest, and other factors (such as the term and whether the loan is fixed or variable) impact the final percentage rate that can be achieved. House-flipping loans may have interest rates that are close to or exceed double that of conventional mortgages depending on the leverage, experience and FICO score of the borrower. However, most fix and flip loan borrowers pay off the principal quickly enough to avoid paying too much interest.
  
  
• Speed to close: FHA and Conventional mortgages by a traditional bank can take anywhere from 30 days or longer to go through underwriting and to receive the appraisal back and closing. It is not typically the lender but third party reports like the appraisal can take a week or two longer than prior to COVID.  Fix and Flip loans with  CambridgeHomeLoan.com can close in as little as 5 to 7 days.  Traditional lenders and banks have a lengthy system of approvals, paperwork, and closing processes. The process often takes 30 days or even longer. House-flipping loans can be closed in under seven days in most circumstances are easier and less paperwork intensive.
  
  
• How Do I Qualify: Mortgage lenders and depository banks typically consider individuals’ credit scores, income and employment histories, and other personal factors when deliberating on both approving a loan and establishing the particulars of the loan. A personal home loan or refinance today may require a credit score of 580. House-flipping lenders, on the other hand, focus more on evaluating the property and the borrower’s ability to quickly improve and sell the property. Rates and qualification are dependent on FICO, Experience, leverage and as repaired value.  In certain cases FICO and leverage aren’t a big factor and in other cases even experience can be waived.