House flipping is a real estate venture that involves purchasing homes that need a facelift. After fixing up the home, the value goes up, and the renovator ends up selling the house for double or triple the price. House flipping can be a lucrative business when done right, but it’s important to note that it comes with financial risks, especially for first-time buyers.
If you’re interested in purchasing properties to renovate and flip but don’t have the revenue, you will need to look into loans to help you get started on your new venture. If you’re new to house flipping, the options can be a little overwhelming, but they’re not too difficult to figure out. To help your search, here are six loan options for first-time home buyers.
Loans from private lenders are a good option for individuals with great banking relationships. When you have a relationship with a bank, they consider you less of a risk due to your history and are more willing to help you along the way. You’re more likely to receive more financial benefits and options from a private loan.
Bridge loans are short-term loans made to help you out when you need immediate funding and when you can secure long-term financing. Bridge loans typically have high interest rates but can help you get funding for your project more quickly while you wait for money from a mortgage. The funds from the mortgage will help pay off the bridge loan. With bridge loans, there’s a risk that your longer-term finances will fall through, and you’ll be stuck paying off the loan on your own.
Hard Money Loans
A popular loan option for first-time home buyers is a hard money loan. Hard money loans are easier to obtain because the lender isn’t looking at your credit history. Instead, they may look at your debt-to-income ratio but not judge the credit score itself. The lender will review your background information to determine whether you can commit to making payments toward the loan. Property rehab flippers typically use hard money loans because you can obtain the loan reasonably quickly.
Home Equity Loan
Home equity loans are for those who want to use their property’s profit to invest in a property flip but don’t want to touch their primary mortgage funds. In other words, it’s a second mortgage with another monthly payment. Home equity loan rates tend to be higher than your original mortgage. We encourage you to calculate the rates to determine if a home equity loan is cost-effective.
Personal loans are popular because there is no collateral involved. With personal loans, you will get approved or denied relatively quickly. If approved, you will receive your loan money in 24 hours. The downside to personal loans is the interest rate is sky high.
Crowdfunding relies on a group of individuals or institutions to help finance the flipping project. Each lender, known as an investor, will supply a small percentage of the borrower’s loan to earn interest. You don’t have to qualify for a loan, and you can fund the renovation project quickly if investors are generous. However, you have to pitch your idea to several investors in the hopes they’ll open their checkbooks.
Whether you’re getting a loan from a more traditional source or an investor, the house flipping process involves many steps before you can begin knocking down walls. Have your blueprints, know your market, and prepare your financial documents. Val-Chris Investments wants to help finance your new home flipping endeavor. Contact us today to get started.