Despite how exciting real estate investing can be, knowing how to get loans for flipping houses can be frustrating. You certainly don’t want to end up with a vacant half-rehabbed property that you can’t finish because you ran out of money.
Unsecured personal loans & lines of credit
I’m just going to start with what I consider to be the best and easiest way to get loans for flipping houses. Get an unsecured personal loan or line of credit. The loan exchange offers personal loans up to $100K that you can use to get your investment property rehabbed.
If you’re worried about the higher interest rates that come with these types of loans, don’t be. Remember, the idea is to flip the property and pay it off quickly. Even if your property doesn’t sell quickly, you can do a cash-out refinance with the bank to pay off the unsecured debt.
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I’ve used unsecured personal loans and lines of credit to purchase and rehab nearly forty properties over a two-year period.
Hard money flip loans
Hard money loans are another viable way in getting a loan to flip a house. The plus with hard money is that these lenders look less at the personal finances of the borrower and more on the property when making a lending decision.
Hard money rehab loans typically finance somewhere between 75%-90% of the rehab, but you must have significant cash savings to convince hard money lenders that you can make the payments during the rehab stage.
Additionally, while the interest rates on hard money loans will likely be less than unsecured personal loans and lines, you usually have to pay upfront points/fees which range from 1%-10% of the loan amount which makes this type of financing expensive.
If you want to keep your interest rates and payments low, you might consider a rehab mortgage from a bank. Although there will be more hoops to jump through than say getting an unsecured loan or hard money loan, the interest and payments with bank rehab loans will be lower than these other forms of rehab financing.
It’s important to understand that with bank-issued rehab loans, the bank won’t just cut you a check for the loan, and let you run off and make repairs.
The lender will want to see a detailed list of all repairs being made along with costs for each repair. The rehab loan will be held in escrow, and as you complete different stages of the rehab process, the lender will likely send someone to the property to verify that work has been completed. At this time, you can take the money for that particular stage, known as a draw, and move onto the next stage of repairs.
Let’s discuss three different bank rehab loans: conventional rehab loan, FHA 203k mortgage & Fannie Mae HomeStyle loan.
Conventional rehab loan
Conventional rehab loans will likely require 20% down, and you can use them for renovating investment properties.
FHA 203k mortgage
An FHA 203k mortgage allows you to get a renovation loan for as little as 3.5% down, however, because of the low down payment, lenders tack on what’s called private mortgage insurance (PMI) which makes the loan, overall, more expensive than a conventional rehab loan.
Furthermore, FHA 203k mortgage loans cannot be used for investment properties; only for primary residences.
Fannie Mae HomeStyle loan
A HomeStyle® Renovation Mortgage is a long-term (15 or 30 year) renovation mortgage that is available for property owners interested in rehabbing 1-4 unit principal residences, one-unit second homes, or one-unit investment properties, including units in condos, co-ops, and PUDs.
loans for flipping houses: Final thoughts
So, as you can see, you’ve got several ways of getting loans for flipping houses. Personally, I like using unsecured loans and lines, but obviously pursue whichever option best suits your particular situation.