How Do Fix And Flip Loans Work?

Have you ever watched TV shows about people flipping homes? Most people enjoy watching these shows to see the before and after pictures of these homes, and some people decide to give it a try themselves. If you want to flip a home, you might want to begin by applying for a fix and flip loan. If you are not sure what this is or how it works, here are several things you should know.

Fix and Flip Loans Have One Purpose

A fix and flip loan has one purpose. It is to provide money to a real estate investor to complete a flip project on a house. You cannot obtain a fix and flip loan to buy a house you plan to keep and live in for years. Instead, it is a loan type designed only for flipping homes.

You Do Not Need Perfect Credit or a History of Home Flips

The second thing to know is that lenders do not require perfect credit or a history of home flips. Lenders might be hesitant to offer loans to people with poor credit scores, but they do not require perfect credit scores. Lenders care more about the numbers than anything else.

Lenders Care About the Numbers

When you want to flip a home, the numbers refer to several things. First, how much money are you paying for the home? Secondly, how much money do you need to renovate it? Third, how much money will the home be worth when you finish the job? These are the main things that lenders care about when issuing fix and flip loans. If you want to get approved for a loan, make sure you provide all these details to the lender.

Fix and Flip Loans Have Different Terms than Traditional Mortgages

The final thing to understand about fix and flip loans is the terms they have. Their conditions are not the same as those you would get with a traditional mortgage. Instead, the terms are different. One difference is the timeframe of the loan. A fix and flip loan last only six to eighteen months in most cases. The second difference is the interest rate. You might pay a higher rate to borrow money through this type of loan, primarily because fix and flip loans have higher risk levels to the lenders. If you have questions about the terms of investment property loans, talk to a lender today.