Top Things to Look for in a Residential Rehab Loan

House flipping loans are an essential tool for the professional house flipper. The right residential rehab loans can help you better leverage your capital to invest in more properties at the same time or focus on higher-end properties, which tend to be more lucrative in the current marketplace.

If you’re weighing the risks and benefits of various house flipping loans, use this checklist to help choose the best loan for your fix and flip investing prospects:

• How reputable is the lender?

First and foremost, you want to make sure that your loan is coming from a firm that you can trust. It’s common to use private money lenders for house flipping loans, as they tend to be easier to access and have better terms than bank loans. But there are big differences between different private money lenders, and there are even more differences between private money lenders and hard money lenders.

Before you sign anything, make sure that the company you’re dealing with has a solid reputation within the industry. Talk to their current and former clients, and check their rating with the Better Business Bureau. Find out how often their loans default, how long they’ve been in business, and exactly where your money is coming from.

• What is the interest rate?

Will the lender give you a better rate based on your track record of success? Do they offer improved terms to people that they have worked with multiple times?

• What are all of the loan points, fees, and hidden charges?

The interest rate alone is enough to tell you how much a loan will cost you. Have your accountant look over any potential loans to make sure that all of the terms and fees are fair.

• How quickly can the loan be funded?

Speed is of the essence in fix and flip investing. The quicker you can get your loan, the quicker you can move forward with your renovations. And as we all know in this business, time is money.

• Does the lender offer preapproval?

When purchasing a home, being able to prove that you will have the necessary funds to complete the transaction is obviously important. Preapproval helps you stand above the crowd and prove your professionalism to home sellers.

• Does the loan have a prepayment penalty?

You don’t want to get punished for doing your job well. Make sure that any loan you agree to has your best interests at heart. A loan between a private money lender and a house flipper should be a partnership, not an opportunity for one party to take advantage of the other.

• How much can the lender offer you?

Investing in high-end properties requires high-end loans. If you’re interested in luxury fix and flips, will the lender be able to provide you with enough capital to get the job done right?

• How much money does the lender require you to put towards the purchase price?

If the lender doesn’t require you to put anything towards the purchase of an investment property, that’s a bad sign. Any reputable lender will want you to have skin in the game. A lender who is willing to make a bad investment is one who is hoping you will default.