Fix-and-Flip Loans for Residential Real Estate
Fix-and-flip loans are short-term loans that allow real estate investors to buy properties and make improvements to resell them for a profit. Fix-and-flip loans typically have slightly higher interest rates than traditional mortgages. It’s possible to find fix-and-flip lenders that offer 100% financing. You can use fix-and-flip loans to buy commercial or residential properties. Commercial […]
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Fix-and-flip loans are short-term loans that allow real estate investors to buy properties and make improvements to resell them for a profit. Fix-and-flip loans typically have slightly higher interest rates than traditional mortgages. It’s possible to find fix-and-flip lenders that offer 100% financing.
You can use fix-and-flip loans to buy commercial or residential properties. Commercial properties have a business purpose, while residential fix-and-flip loans can be used to buy single-family homes, condos, or multifamily properties, like duplexes or triplexes, for families or individuals.
Keep reading to learn how residential fix-and-flip loans work and where to find them.
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Where to get residential fix-and-flip loans
Venturing into the real estate industry requires a sizable funding solution, and fix-and-flip loans are an attractive option for residential real estate investors.
We researched five leading lending companies to help tailor your decision in selecting the appropriate loans. We’ve considered factors such as borrower incentives, lines of credit, funding speed, level of loan customization, and growth opportunities.
Here’s a breakdown of the lenders in more detail. Click on the lender’s name in the table below to learn about its fix-and-flip loans.
| Lender | Details | Best for |
| New Silver | Quick funding and competitive rates | Borrower incentives |
| BlueVine | User-friendly, flexible financing | Fix-and-flip line of credit |
| Kapitus | Competitive rates and terms | Customization |
| OnDeck | Short-term loans and streamlined application | Fast funding |
| Funding Circle | Tailored loans, competitive rates, focus on long-term solutions | Growing businesses |
New Silver: Best for borrower incentives
- Generous borrower incentives
- Quick and convenient loan application
- Accessible customer service
New Silver distinguishes itself in the lending industry by offering reliable incentives to borrowers. Its simplified and speedy loan application encourages first-time investors to embark on their real estate journey.
Coupled with top-notch customer service, you’ll have the necessary guidance to navigate your financial journey.
Bluevine: Best for fix-and-flip line of credit
- Competitive rates for lines of credit
- Flexible repayment terms
- Streamlined application process
Bluevine provides a flexible line of credit with competitive rates. It lets borrowers have control over their repayments, which can ease the loan management process. Applying for a loan at BlueVine is a seamless and quick process that helps you get started quickly.
Kapitus: Best for customization
- Wide range of loan products
- Customizable loan solutions
- Helpful business tools
Kapitus offers a diverse set of lending products tailored to each borrower’s unique needs. Its customized loan solutions can fit investors’ specific scenarios, making it a solid choice for many residential real estate investors. Kapitus’s user-friendly tools will guide you through your financial journey.
OnDeck: Best for fast funding
- Quick funding options
- Transparent fees
- Comprehensive borrower education resources
Consider OnDeck if you’re looking for express funding, assuring you have the finances immediately available when required. Its upfront fee structure prevents unpleasant surprises, and comprehensive borrower education resources equip you with the information you need to make informed decisions.
Funding Circle: Best for growing businesses
- Loans designed for business expansion
- Dedication to transparency
- User-friendly platform
Funding Circle offers loan products for growing businesses. Its operations adopt a transparent approach, ensuring a clear and simple loan process. Its user-friendly platform makes navigation easy and provides a smooth lending experience.
What do you need to know about fix-and-flip loans for residential real estate?
Applying for a fix-and-flip loan to purchase residential real estate is slightly different from applying for commercial fix-and-flip financing. Some of the key considerations for lenders with residential fix-and-flip loans include:
- Loan-to-value ratio (LTV): LTV measures the loan amount, relative to the property’s value. Maximum LTV for residential fix-and-flip loans is usually 90%, though some lenders may offer 100% financing.
- After-repair value: After-repair value is the property’s estimated value once you’ve completed renovations. An appraiser determines this number.
- Borrower finances: Lenders can examine your financial situation, including your credit scores, income, and employment history. Lenders may also ask about your experience with house flipping or real estate investing.
Fix-and-flip loans can be a good fit for residential or commercial investors who accurately estimate the project budget and are confident they’ll be able to sell the property before the end of the loan term.
These loans may also suit investors who need cash to move quickly on deals, as they can offer a shorter closing window than traditional real estate loans.
Pros and cons of residential fix-and-flip loans
Fix-and-flip loans for residential property have both advantages and disadvantages. Comparing pros and cons can make deciding if they’re right for your needs easier.
Pros
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Fast closing
As mentioned, fix-and-flip loans can close faster, allowing investors to move quickly to purchase distressed properties.
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Less stringent qualification
Perfect credit isn’t a requirement to get a residential fix-and-flip loan and some lenders have no minimum credit score at all.
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Interest-only payments
During the loan term, you may only be required to make interest-only payments to the lender.
Cons
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Higher rates
Fix-and-flip loans can carry higher interest rates than other types of real estate financing.
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Shorter payoff window
A typical repayment term for fix-and-flip loans is anywhere from six to 18 months, so you’ll need to plan your repairs carefully to ensure you have enough time to complete them and put the property on the market.
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Some cash may be required
If you cannot qualify for a loan with a lender that offers 100% financing, you’ll need to be prepared to put down anywhere from 10% to 20% of the purchase price and pay any required closing costs.
Risk management for residential fix-and-flip loans
House flipping can be profitable, but you’ll need a plan if you’re using a fix-and-flip loan to fund the project. Here are a few tips for managing risk as you prepare for your first (or next) flip.
- Review your budget. One of the biggest traps to avoid with flipping is miscalculating your budget. Over budget, and you’ll borrow more than you need to; under budget, and you won’t have enough to finish the repairs.
- Include a cushion. Adding 10% to your estimated budget can give you a cushion if something costs more than you expected.
- Plan for contingencies. Having a backup plan can save the day if the market goes south, the project goes over budget, or renovations take longer than you expected. For example, if you cannot sell the property before the fix-and-flip term ends, you might consider refinancing into a new loan to avoid having to make a large balloon payment.
Ask the expert
I strongly recommend you enter this business carefully. This business can be very rewarding if precautions are taken and planning and research are done, resulting in a lucrative primary or passive income source. One concern is ending up in a desperate position requiring you to liquidate assets or investments earmarked for retirement or children’s education.
How to get a fix-and-flip loan for residential real estate
To apply for a fix-and-flip loan, you’ll first need to find a borrower to work with. We’ve given you some recommendations but you may want to research lenders in your area as well.
When comparing loan options, remember to consider:
- Minimum and maximum loan dollar amounts
- Loan repayment terms
- Interest rates
Again, you may have anywhere from six to 18 months to repay the loan, though some lenders may extend this to 24 months. Fix-and-flip loan rates may range from 8% to 15%, depending on the lender and loan amount.
Once you’ve found a lender that seems like a good fit, here are the next steps.
1. Review qualification requirements
Lenders set the requirements for residential fix-and-flip loans, with qualifications that may be based on:
- Credit scores (620 or better may be preferred)
- Income
- LTV ratio (the max is typically 90%)
- Estimated after-repair value
- Renovation budget
Comparing your credit scores, budget, and property details can help determine whether you might qualify.
2. Gather documentation
Your lender may ask for a variety of documents when applying for a residential fix-and-flip loan, including:
- Recent pay stubs
- Bank statements
- W-2s or copies of your tax return
- A breakdown of your project budget, along with your contractor’s information if you won’t be doing the repairs yourself
- Valid, government-issued ID
- Copy of the purchase agreement
- Earnest money deposit, if required
- Documents related to your business, if applicable, such as articles of organization or an operating agreement
You’ll also need to secure an appraisal, which the lender may arrange. You can expect to pay a few hundred dollars for the appraisal.
3. Complete the application
Once you have your paperwork organized, you’ll need to complete the application. Many lenders allow you to do that online and upload any required documentation.
After submitting the application, the lender may ask for an insurance binder. This is proof that you’ve secured the necessary insurance for the property. Your insurance agent should be able to provide it to you.
4. Close the loan
Assuming you’re approved, the final step is closing the loan. You’ll sign the required paperwork and pay your closing costs and down payment.
Depending on the lender, you may close as quickly as 10 days after submitting your application. Reviewing closing times when comparing lenders may be a good idea if time is of the essence when purchasing a property.
How can market analysis help you select residential properties for flipping?
How do you find a good property to flip? Here are some ideas for finding homes that have profit potential.
- Review comps for similar properties in the area to understand how prices are trending.
- Identify the area’s positives and negatives that could make it more or less attractive to prospective buyers.
- Look at what a property offers that sets it apart from similar homes.
- Evaluate the speed of home sales to get a sense of the average time on the market for similar properties nearby.
Working with a realtor or agent who knows the local market well can help you identify properties that may be better buys than others.
Alternatives to fix-and-flip loans for residential real estate
Residential fix-and-flip loans aren’t the only way to fund your property investment goals. There are a few other financial possibilities you might consider.
| Financing option | What makes it attractive |
| Home equity loan or line of credit (HELOC) | Home equity loans and HELOCs allow you to leverage your existing equity, at lower rates than you might pay for a fix-and-flip loan. |
| Cash-out refinancing | Cash-out refinancing can put cash in hand at closing and get a new mortgage with different terms. |
| Personal loans | Personal loans may be appropriate when you need to borrow less money for fix-and-flip properties. |
| Hard money loans | Hard money loans are similar to fix-and-flip loans in terms of what they’re used for but focus primarily on the details of the property for loan approval |
| Seller financing | Seller financing may allow you to sidestep traditional credit score and income requirements by repaying the seller on an agreed-upon schedule. |
Ask the expert
To choose among these options, prepare a spreadsheet identifying at least three different options and list the pros and cons for each. Include costs, fees, interest rates, and even the financial institution’s rating on the Better Business Bureau and other publicly available reviews. Call the companies to get a feel for their customer service.
The post Fix-and-Flip Loans for Residential Real Estate appeared first on LendEDU.