Rehab vs. Fix and Flip Loans: What’s the Difference?
Flipping houses has become a popular option for those wanting to invest in real estate. Popular house makeover shows on channels like HGTV and DIY have created a stir of interest in flipping homes. Most of these hosts however have been in the business for quite some time and have all the financial backing and experience you would expect. For beginners, expect to work side by side with contractors building relationships and saving money. Fix and flip financing may provide the capital needed to fund that first, second or third project.
Difference Between the Two Loan Types
The two loan names are interchangeable. The lender chooses one based on their own marketing preference and the local market climate. Historical home markets may have rehab loans versus the fix and flip name. Determine the home’s and your needs such as offered rates, the property and current market to choose the right loan for you. Ensure the loan covers more than just the purchase price of the home in order to fund the necessary construction projects, unless you already have that capital available.
Information Needed for Loan Application
Many lenders want answers to several key questions prior to financing a loan. Having as much information ahead of time can increase your chances of securing the fix and flip financing and purchasing that first house. They may want information such as the property’s resale value, renovation costs and original purchase price. Lenders prefer the original purchase price to be well below current market value. Knowing your credit score can help you determine the interest rate ahead of time. Make efforts to improve your score prior to loan application to get the best rates.
Difference Between Rehab and Traditional Mortgages
A regular mortgage is a long-term investment both the financial institution and you are making, in theory. Fix and flip financing is expected to a short-term situation. As such, the loans come with higher interest rates and shorter terms than a traditional mortgage. The faster you are able to rehab and sell the home, the less money you pay in interest.
Fix and flip financing is a great option for those on a time crunch. Investors quickly scoop up those homes with low sales prices making time of the essence for any buyer. Getting started in real estate investing can require a lot of time, energy, money and work. Once you get down the details, flipping houses can result in a lucrative income stream.