If you’re thinking about getting into flipping houses, there’s a lot to know about the financing side of the business. It’s more than simply sitting down at a bank and asking for a mortgage. Often, flipping homes require a specialized loan so you can secure the proper funding and quickly pay it off without excessive fees. At Harper Financial, we want to help you fund your next project with fix-and-flip funding. However, we also understand if you have some questions regarding this unique side of the real estate business. Keep reading for answers to four frequently asked questions about fix-and-flip loans.
How is fix-and-flip funding different than standard financing?
When buying a home, it’s most common to apply for a 15- or 30-year mortgage. These are designed as a compromise between you and the lender as a way to lessen your financial burden of repaying a loan for your home over the course of a specified amount of time that works for you.
Fix-and-flip funding is meant to give investors a loan that will cover the cost of a home and the renovations required to get it to a state where it can be sold. The loan is then meant to be paid off once the home is sold without drawing it out for an extended period of time.
Is there a limit to properties I can get a fix-and-flip loan for?
While there’s a limit to the type of properties that you can get a fix-and-flip loan, this doesn’t mean that you’re pigeon-holed into one or two property types. You can still get funding for single-family homes, townhouses, condominiums, or properties that have four units or fewer. This allows you to prospect for properties that you believe you can get a significant return on your investment without feeling too limited in your possibilities.
Do I need a down payment?
The answer to needing a down payment when securing fix-and-flip funding comes with the type of funding you’re looking for. If you’re looking for a loan that’s meant to finance the purchase of a house or property, you’re going to need at least a 10% down payment against the purchase price. However, loans for rehab funds are available at 100% of the project value, which means that you aren’t required to provide a down payment. In the case that you’re looking for a max loan of up to $1.25 million, you would need to have a 25% down against the value of the property after repairs are complete.
Is there a prepayment penalty?
One of the benefits that investors can take advantage of with fix-and-flip financing is that there are no prepayment penalties. If you have a traditional 15-year mortgage and choose to pay it off in seven years, you’re going to have to pay a prepayment penalty. This is because the bank or lender is trying to recoup some of the lost interest that you’re not going to be paying on the last eight years of your mortgage. This is not the case with hard money loans as they’re meant to be paid off in a much shorter time.
Get in touch for more answers
If you’re looking for more answers than what we’ve provided here about fix-and-flip funding, get in touch with our team for more answers. At Harper Financial, we can help you learn more about getting the money you need for your next project. Contact us by calling 508-559-1619 or send us a message with your questions. We’ll be sure to get back to you promptly because we look forward to helping you finance your next success.