Is getting a conventional loan more practical for my flips?

Question

I am beginning to think that getting a conventional loan might be more practical for flips I am doing and hoping to get some feedback from individuals who have potentially done the same.

First, the homes I am buying as the realtor/buyer can pass inspection/appraisals so the flexibility of HML is negligible. In fact with the last hard money lender I dealt with, I found their appraisal to be the most tedious to get through.

My current regular lender can usually close in 21 days or faster and I really don't care about closing in 14 days vs even 30 days for example.

My projects usually take under 6months and sold within 90 days after. While it hasn't happened yet, if we needed to, I would turn the house into a rental. But if I did that with a hard money loan, then I'd have to get an additional loan and pay for additional loan fees vs already just being in a 30 year mortgage.

Given that my projects are under a year, the years worth of interest is far less than the traditional 10-11% flat interest I'm paying with a HML.

I don't need the money to fund the renovations. In fact, I don't like that I have to finance that portion with most HML because I have that liquid.

Is there anything else I need to consider?

Patrick Roberts · Answer

The most common reasons that investors typically use HML/PML over conventional lending are 1) flexibility/simplicity in underwriting guidelines and requirements for employment/income/DTI and similar aspects, 2) property condition, 3) speed, and 4) cash to close. Another aspect is closing in an entity vs your own personal name. If you're OK with these points for a Conventional loan, then it will likely be cheaper that HMLs.

Jacob Bremer · Answer

A line of credit would be nice however I’m pretty confident. And wouldn’t the interest be similar to that of an HML?

Jeb Durgin · Answer

You've got a solid read on this. As another investor, if your flips are consistently checking those boxes, honestly, I'd say leaning into conventional loans makes a ton of sense for your specific game.

You're right: HML flexibility is overkill if your properties already pass conventional muster and appraisals. Why pay for the extra flexibility you don't need? Speed is fine; 21-day closes are quick enough. You're not losing deals because you can't close in 7. The rental pivot is also key. Being able to smoothly transition to a 30-year mortgage if a flip stalls? That's huge. No double fees or scrambling to refi out of high-interest hard money. Finally, costs are lower. You're saving a ton on interest, and you don't need to finance the reno. That's just more cash in your pocket.

You've thought this through well, but here are two things I'd still consider:

• Recycling Renovation Cash: If you do turn a flip into a rental, conventional loans sometimes have a seasoning period (like 6-12 months) before you can do a cash-out refi on the new value. So, your reno cash might be tied up a bit longer before you can pull it out for your next project.
• Scaling Limits: Conventional lenders have limits on how many loans you can have (like 10 per person) and will look at your overall debt. As you scale big, this could eventually become a constraint that hard money (being business debt) usually bypasses.

Honestly, for your model, conventional seems like the smarter, more cost-effective way to go. You're building solid wealth without the extra fees and pressure.

Have you chatted with your regular lender about using them for your next flip yet? Maybe get an idea of the pricing differences

Joel Weiser · Answer

If the property will pass appraisal and you don't need funds for renovations a long term loan is definitely much cheaper and more beneficial to you. I do this quite a lot. Feel free to reach out anytime if you have any questions

Joel

Jacob Bremer · Answer

the post is getting away from HML so it wouldn’t matter if they did or not.

Line of credit is maybe 7-8% in ideal situation? I can get 30yr right now at 7% or lower and it’ll be over 30 years rather than 10 or 15 or 20. Even if the LOC was 30 doesn’t seem like it would be less.

Erik Estrada · Answer

The choice of financing largely depends on your needs.

If you are looking at properties that can pass an appraisal, only need cosmetic rehab, and the seller can close in 21-30 days, conventional loans will be the way to go.

As a courtesy I would tell the Loan Officer upfront that you plan to payoff their loan before 6 months. While there is not a Prepay on these loans, some lenders have EPO, especially if you plan on using a mortgage broker.

You might be better off working with a bank or credit union that does not have EPO.

Jacob Bremer · Answer

Could do either. Doesn’t matter to me.

Jaycee Greene · Answer

@Jacob Bremer Are you buying the property in an LLC or your personal name?

Brett Chandler · Answer

Conventional will cost more upfront, but you will most likely save on the closing costs having to roll out of a flip loan. Are you going to keep the property, or you going to sell?

Is getting a conventional loan more practical for my flips?

Most Popular Reply