What You Need To Know About Loans in the House Flipping Industry

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Mortgage loans for flipping a house

Do you want to learn how to fix and flip houses? Let’s do it! This article has recreated this booming old business concept, and we’d like to let you in on what you need to know. According to ATTOM Data Solutions, 53,705 standard houses and apartments in the U. S. were flipped in the first quarter of 2020. It appears to be so simple! Purchase a house, make a few cosmetic repairs, and resell it for a hefty profit. Many shows on television showcase the best investors who make the process appear easy and lucrative, is it? Well, here is what you need to know.

What Is House Flipping

House flipping is a type of real estate investment in which you buy cheap houses that typically need maintenance, renovations, and you put them up on sale for more than you spent. House flipping is a booming industry, but it is fraught with financial risk, particularly for starters. If you want to buy houses to renovate and flip but don’t have the funds, you’ll need a bank loan to get started on your real estate venture.

What Are House Flipping Loans

A house flipping loan is a short-term loan, a higher-interest loan that investors can use to finance both the expense of buying a property and the expenses of fixing and making improvements to the house. These loans are similar to bridge loans in that they provide short-term finance until a person or firm obtains stable financing or discharges an existing commitment. In addition, these short-term loans, often known as hard money or private money loans, are very different from traditional mortgage loans in that they are intended to assist the investor in covering the upfront expenditures of purchasing and upgrading a house. It is repaid when the house is sold.

Do you require previous house-flipping experience?

To obtain a loan for this worthwhile investment, you do not need any prior expertise flipping houses. As long as the statistics sound right, there are many lenders prepared to give loans to newbie property investors.
However, not all lenders will work with first-time property flippers, and those who do are willing to offer less ideal conditions than borrowers with a track record of successful flips. It may also be advantageous to obtain a real estate license to broaden your expertise.

How to Get a Loan to Flip a House

Mortgage loans for flipping a house are expected to finance the purchase and restoration costs of the house to be flipped. Once the house has been flipped, there is no guarantee that the agent will secure an immediate buyer. Given the high risk involved, traditional lenders are a bit skeptical in offering loans. Getting a 10-20 year mortgage plan does not make sense if you intend to sell the house you are flipping. It is why mortgage loans for flipping a house from traditional lenders would not make sense in this business.
On the upside, private lenders and hard money loans can come to your rescue and offer you the help you need.

Legal services

Before acquiring a loan, you need to conduct due diligence on the type of loan and who is offering the loan. Mortgage loan frauds are common, especially in the house flipping business. There are a lot of fraudulent individuals and organizations online that pretend to offer mortgage loans for flipping a house. Lawyers come in handy to handle the legal aspect of the entire process and ensure that you are not getting duped. A lawyer will assist in verifying loan lenders, assess the potential legal pitfalls involved in the flipping business, and advise you on the most appropriate ways of manoeuvring to get the most out of your mortgage loan.

Qualifications to Acquire a Loan to Flip a House

The requirements to acquire mortgage loans for flipping a house vary significantly across different lenders. Traditional lenders focus on your credit score and your ability to repay. Other lenders are more concerned with the value of the property and your business pitch for it. Some of the documents you will need include;
– Bank statements
– Copy of any identity such as a passport or driving license
– A sale agreement of the property
– List of additional properties you may own
– Previous house flip projects you have completed
– Tax compliance documents
– Estimates of proposed renovations from licensed contractors

Hard Money Loan Lenders

A hard money loan is an asset-based loan. The borrower secures the required funds through a property, usually the real estate house, to be flipped. The property is used as security such that in the event of a default in payment, the lender can foreclose on the house.
You can find hard money loan lenders online or through referrals from other flippers. Their terms are usually up to 1 year but can be adjusted up to 2-5 years.

Advantages of Using Hard Money Lenders

Reasonable payment plan – Hard money loan lenders are more accommodating as they can tailor your loan to fit your needs. You will be able to acquire the loan to flip your house, and the lenders will only require you to pay the interest accrued once you sell your house.
Fewer qualifications conditions – The conditions a borrower is required to satisfy are also less compared to traditional lenders. When evaluating your suitability, factors such as credit scores and debt-to-income ratios usually are not considered. Conventional lenders have lengthy requirements that keep changing from time to time. A flipper may be unable to meet all these requirements.
Finance otherwise rejected projects – traditional lenders lack interest in financing some projects such as house flipping ventures. They have a limited catalog of projects they are willing to invest in, locking out the group of house flippers. Fortunately for you, hard money loan lenders do not discriminate against their clients, and mortgage loans for flipping a house can be easily acquired. This comes as a great relief for agents who have been shunned away by traditional lenders.

Private Lenders

A private lender is anyone with a substantial amount of capital and is willing to offer a loan. It can be anyone from your friends, families, or online lenders. Private lenders are not in the business of loaning but are open to financing you if they are convinced of your project. The difference between a private lender and a hard money loan lender is the interest rates as well as the terms of repayment. A private lender can be located online at real estate networking events and real estate conferences.

Advantages of Private lenders

Open to negotiation – the terms of acquiring and repaying the loan are friendlier compared to hard money loans. A private lender is willing to set more accommodating terms as well as lower interest rates. A private lender will be willing to be a partner in the project and share the profits at the completion of the project.
Open to newbies – in any business, beginners have a hard time securing partners or investors. This is because they lack experience in the field. A private lender is more willing to loan a beginner than traditional lenders. As a first-time house flipper, you stand a chance of acquiring mortgage loans for flipping a house as long as the private lender is convinced of your business proposal.


Crowdfunding involves collaborative efforts between individuals or institutions to finance loans. Each individual in the group is referred to as an investor and contributes a certain percentage of finances that make the total amount of the borrower’s loan. Interest earned is then calculated as per the percentage of each lender’s contribution. For instance, if former classmates came together to crowdfund and each member gave 25% to finance a loan, the interest earned at the sale of the flipped house would be calculated at the same rate. A house flipper can find crowdfunding sites online to support their business venture of acquiring mortgage loans for flipping a house.

Advantages of Crowdfunding

Free marketing – given that crowdfunding largely takes place online, investors can track your progress and use their networks for marketing your venture if they are convinced of positive returns. You are therefore not only acquiring funds but also getting free marketing to potential clients.
Expert guidance – flippers are required to pitch in their ideas on the platform to acquire funds. If they fail, investors offer feedback and advice on how to improve on their ideas to secure a loan. This heightens their chances of success.

Potential Drawbacks of Acquiring Loans for House Flipping

Whereas the house flipping industry is a highly lucrative business, there are some potential downsides that you need to be aware of before dipping your feet in the sand and acquiring mortgage loans for flipping a house. Some of the drawbacks you may come across are;
Increased Interest rates
Since you are acquiring a different type of loan, the lending process and the interest rates are also different. You can therefore expect to dig deeper into your pockets when it comes to repaying the loan. The rates also go higher depending on the value of the property, lender, and the borrower.

Carrying Costs

You will only be able to reach your break-even point once you have completed all associated renovation plans and sold the house to receive projected profits. However, the costs involved until you find a buyer for the house, such as insurance and property taxes, will solely be your responsibility. The longer it takes for the house to be sold, the longer you will be responsible for carrying these costs.

Key Areas to Invest Your Loan in House Flipping

In the House Flipping industry, you will do different kinds of tasks and renovations, whether it’s water damage cleanup or calling a reputable company specialized in bathroom remodels. You can choose to do equipment rental rather than buy the equipment to significantly reduce repair costs. Here are some of the critical areas you will need to renovate.

Roof and HVAC services

The roof is a key area that the majority of buyers will be looking at. It is your duty to ensure that the roof installations have been done by a skilled professional and can sustain extreme weather conditions. SPF roofing is increasingly becoming popular, especially in house flipping projects. This is because it saves money, is energy efficient, easy to maintain, easy to install, and possesses waterproof properties. HVAC contractors will also come in handy in repair or install a new heating and cooling system. The house’s security should also be a top priority as the buyer will most likely store their valuables in the house. The doors should be installed with quality locks and the exterior with a steel garage door. Investing in quality, durable and efficient materials can increase the purchasing power of the buyers. As a house flipper, you should research the market and find out the best installations and contractors to carry out the renovation project.


The floor is one of the first things that any potential buyer will see. It, therefore, makes sense to make an excellent investment in the flooring of the property. Vinyl flooring is one of the most affordable and durable floors in the market that comes in many choices that fit every home design.


You should check and repair any leaks in the plumbing system. You do not want to do renovation and cover all sections before addressing the plumbing issues.

Hard money lenders and private lenders can substantially come through for you in your house flipping venture. The tips included in this article shed more light on what you can expect when you acquire such loans. You are well-informed and in a better position to decide on whether a house flipping loan is a way to go.

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