Investor · Baton Rouge, LA · Member since 2017 · 29 posts · 3 votes
Hi,
1. What are the advantages and disadvantages with using the 203k or Fannie Mae Renovation Loan vs Hard Money Loans for fix and flip properties?
2. What are the advantages and disadvantages using Hard Money Loans for fix and flip properties?
I have access to loan programs for fix and flip investors and fix and rent investors, which are through a lender. They are the 203k loans and the Fannie Mae Renovation Loan.
I also have access to Hard Money lenders for fix and flip investors and fix and rent investors.
I am trying to compare and see which options are best.
Investor / Lender · Seattle, WA · Member since 2014 · 1k+ posts · 730 votes
8y
If both you and the property can qualify for the bank loan, that's usually going to be the better option; it's simply cheaper and less risky. But a lot of investors don't qualify for bank loans, and sometimes the property's in bad enough shape that it doesn't either. Banks are just more headaches, so there's a hassle factor as well.
Mainly it's about closing speed. Banks take 30-60 days to close, especially with having to qualify the rehab and the contractor. Hard money lenders are 1-3 weeks. If your competition is offering the seller a 2-week close and you're asking for 1-2 months, there's a good chance you'll lose the deal.
Sometimes you can get in with a lower down payment with hard money lenders (i.e. 5-10%), so depends on your liquidity too. But HomeStyle Renovation is pretty low (15% down I believe), although they may have more reserve requirements.
By the way, FHA 203k loans are used for primary residences. So unless you plan to live in it, that's not an option.
Fairfax, VA · Member since 2016 · 164 posts · 54 votes
8y
203k loans are far cheaper but they are designed for someone that is renovating a house that they plan on occupying. This is your best bet in that scenario. If the property is for investment purposes then that is not an option. A hard money loan may be your best solution as most banks and conventional lenders don't want to lend on properties that are in dilapidated condition and are unoccupied.
With regards to using a hard money loan for your project and then renting it out afterward, it is a viable option. However, you must ensure that you can convert to conventional financing soon after the property is renovated and rented. Some lenders want at least one year of rental history before they will refinance based on fair market value vs. purchase price.