Investment property loans, also known as hard money loans or bridge loans, finance home renovation projects for fix and flip properties. The loan is used to repair the property so it can be resold or rented out to a new owner. Hard money loans are generally used for short-term projects and not intended for primary residences.
If you are getting started in the fix and flip industry, it’s helpful to be aware of your financing options, which include investment property loans. Below we share everything you need to know about these flexible property loans.
How They Work
Hard money loans use investment property as collateral. The lender agrees to finance most of the property, usually 60 to 80 percent. The reason why most hard lenders won’t finance the whole property is that they want you to be invested in the project. The good news is that since the loan is backed by the property, the underwriting requirements are much simpler.
When you get started in the fix and flip industry, it may take a few transactions to see a profit. Typically, the hard money loan is used to repair the property, and when it’s sold, the proceeds are used to pay off the loan. Hopefully, there will be a profit at the end, which can be used to put down on new properties. If you plan on renting out the property, you will probably want to replace the loan with a long-term mortgage.
Here are a few more things to know about investment property loans:
You don’t need perfect credit. Traditional bank lenders won’t work with people who have poor credit scores, or they penalize them with high-interest rates. With a hard money loan, you can still get financing, even if your credit isn’t perfect.
You can get approved in a few days. Bank loans can take months of back and forth paperwork, but investment mortgage loans only take days. You will usually know right away if you qualify for a loan, and the money will come shortly after.
You can fund nonconventional projects. Bank loans typically won’t finance rehab projects. Hard money loans are short-term loans that are intended to fix and flip transactions.
You can decide on the arrangements. Depending on the hard money lender you work with, you may have flexible options on when the loan is paid back. You’re dealing with a single person and not a corporation with strict policies.
Investment property loans make sense when you only need short-term money for a specific project. To learn more about getting financing for your next fix and flip, contact First Equity Funding today.