I flipped 26 houses last year and over 155 in my career. There is no way I could flip that many houses without getting loans on them. I have more financing costs when I use a loan to flip, but I make more money overall because I can flip more houses. So how hard is it to get a loan on a house flip? House-flipping loans are much different than the 30-year mortgages you get when you buy a house to live in, and most lenders will not lend on house flips. There are options for flippers like hard money, private money, partners, and certain banks that will loan on flips. It is easier for someone like me who has a lot of experience to get a loan, but new flippers can as well if they know where to look.
Why don’t lenders like to loan on house flips?
There are many lenders who will lend on owner-occupied houses or even rental properties. However, there are not many who like to lend on house flips. Most banks will not lend at all on a house if they know it is going to be a flip. Banks make their money from lending to people who will be paying them interest over many years. Some banks hold the loans, and many banks sell the loans to other institutions. There are almost no buyers for the banks that sell their loans when the loan is for a flip. That is why so many banks will not even consider financing a short-term investment property.
Should house flippers get a 30-year mortgage?
A lot of people may wonder why don’t house flippers just tell the banks they are going to hold the property so they can get a 30-year or 15-year mortgage on it? An investor may be able to pull that off once or maybe even twice, but eventually, the banks will catch on. If the banks see an investor selling houses over and over again right after they get a long-term loan, they will stop lending to that investor. The investor may not be able to get a loan for a rental or their personal houses because they banks will not believe they are not going to flip the house.
It could also be considered loan fraud if the real estate investor is telling the bank they are going to keep the property as a long-term rental or live in the property when they had the intention of flipping it. It may not be easy to prove what the investor’s intentions were, and it is unlikely the bank would ever go after the investor, but it is possible.
If you want to flip one house in your life, you might get away with using a 30-year mortgage to do it. Or, if you are going to hold a property for two years before you sell it, you will probably be fine. However, if you want to make a business out of flipping, you want to use loans that are meant for house flippers.
How are house-flipping loans different from regular mortgages?
Mortgages on owner-occupied homes or rental properties usually have 15- or 30-year terms. That means the loan is slowly paid off on a 30-year mortgage over 30 years. The interest rates are very low on loans for owner occupants but a little higher on rental properties. Long-term mortgages are considered fairly safe for banks, although there will always be some foreclosures.
House-flipping loans are usually only good for one or maybe two years. They have much higher interest rates in most cases and more upfront costs than a mortgage. Most banks consider house flips a lot riskier than other investments or owner-occupied homes. The down payments are often higher for house flips because the lenders want more skin in the game from investors than they do from owner occupants.
What kind of loan can you get on a house flip?
There are many different loan options when flipping houses. With those different loan options, the rates and terms can vary greatly based on the lender and the investor. The kind of loan I can get in my area could be completely different for investors who have less experience or live in another state.
- Local banks: some local banks will loan on house flips. I have a few banks that I use in my area. They usually require 25% down and do not finance any of the repairs. The rates are around 5% but have been climbing recently. They charge .5 or 1 origination point.
- Hard-money lenders: hard-money lenders specialize in house flips. They offer short-term loans with varying terms. Some lenders will require 10% down and finance most or all of the repairs. The rates can range from 8% to over 12%. The origination points usually range from 2 to 5.
- Private money: private-money lenders are usually people who you know: friends, family, co-workers, or other investors. I use a lot of private money, and the rates vary from 6% to 12% based on the deal. The origination points can vary widely as well. Many hard-money lenders call themselves private money, but don’t be tricked!
- Partners: another way to finance a house flip is to partner with someone. It is very common to see one person do all the work on finding the deal, repairing it, and selling it while the partner provides all of the funds for the deal.
I made a video that goes over the types of financing I use and how much that financing costs me:
How do house-flipping loan terms change with different levels of investor experience?
I have flipped many houses in my career. We have 16 going right now, which you can see here: House Flipping Scoreboard. Lenders are more comfortable lending to me than they are to someone who is brand new to flipping. I get preferred rates and terms where new investors would have higher rates, larger down payments, and fewer lending options. Some hard-money lenders will not lend to new investors, and many banks are that way as well. It can be hard to attract private money if you have no experience.
It is tough to get financing on flips as a new investor but not impossible. Everyone had to start somewhere, and there are a lot of successful house flippers out there. As a new investor, you may have to work a little hard and pay a little more money to that first loan.
I talk about the financing options on flips in more detail in this article: How to finance fix and flips.
House flipping can be a very profitable and fun business. But, it can also be a very expensive business. Loans can help reduce the money needed to flip but are not easy to get. I have done quite a bit of research on different lenders across the country and made a page with more information on them. I have included lenders I have used as well as others I have talked to at length. Check out the page here: House Flipping Financing Options.