best loans for a first flip?

Question

I am new to BP and I am interested in starting off flipping houses. I am still a while seats from feeling secure enough to jump in so here's a question I have. Which loan would you recommend or do you use for a first flip. I would be a first time home buyer assume a 5% down payment availability and that would be all the capital I have for now. Should I go arm 30year 15year interest only 203k construction loan?

Joshua Dorkin · Answer

@Aaron Montague - There's no easy way to make it work with tables beyond grabbing a screenshot and sharing an image of it like you did. Sorry.

Aaron Montague · Answer

Each method of payment has its advantages.  Hard money generally shows up quickly, has less restrictions and lenders can be highly flexible.

Here is a rough breakdown of a 100k loan against a few types of loans:

5/1 ARM 30 Year Hard Money

100k $100,000.00  $100,000.00  $100,000.00

Rate 2.875% 5.000% 10.000%

Points 0 0 3

Months 10 10 10

Monthly Payment $414.89 $536.82 $877.57

Point Cost $-    $-    $3,000.00

Total Cost $4,148.92 $5,368.22 $11,775.72

Formatting for tables is still borked... eh @Joshua Dorkin

Michael Lebeau · Answer

Avoid FHA or any government backed loan like the 203k if your planning on flipping the house immediately. If its a home that needs quite a bit of work, the last thing you want is to get tied up in a 203k loan.. they'll have you jumping through hoops just to get into the property and then more when you go to sell it. I personally have heard to many horror stories about 203k rehab loans and if your planning to flip, this isn't for you .

Aaron Montague · Answer

@Hugo Solorio you want to get the loan that is going to cost you the least amount of money over the time it will take you to flip the house.

The advantage of an ARM is a lower rate.  This tends to be good for flippers, because you don't want to hold the house a day longer than necessary.

Bankrate has loans in Brookline at:
	 4.5-5.0% for 30 year fixed
	2.875-3.0% for 5/1 ARM
	2.815%  (only one available) for 3/1 ARM

No points on any of those loans.  I'd take the 5/1 in this case.  I have no idea how these banks would wrap construction costs into these loans.

Marcus Johnson · Answer

@Kay Lee   You stated that your lender thinks a Conventional and an Arm loan are the same thing, I'm sorry but that is hogwash.  An Arm is an adjustable rate after so many years which means it probably will go nothing but up since we are at all time lows and a conventional is fixed.  So the problems with Arms is that we all think nothing will ever happen and that we'll be able to sell by the time the fixed period is over.   Just wanted to throw my two cents in.  :)

Hugo Solorio · Answer

Thanks @Aaron Montague appreciate it makes most sense to me. I was thinking about hard money Jeremy but I haven't started to network for possibilities and I'd rather make a mistake and lose my own money vs someone I just met what would be the consequence if the flip didn't make money besides me losing all creditability.

Jeremy Dyer · Answer

@Hugo Solorio I think you should look into Hard money sources also.  They lend you money for the purchase and the rehab of a property.  Also they use an appraiser to determine retail value after rehab, this allow you to know that you are buying the right deal.   It is a little costly but you risk less of you capital and increase your buying power.

Kay Lee · Answer

Welcome to BP. I'm a newbie as well, but I am doing the similar stuffs right now.

If this is your first time, you can do it as your primary residence and go for FHA loan with as little as 3.5% down. AFAIK, 203k can be tacked onto the loan if you are the primary residence. According to my lender, there isn't much difference between 30 year fixed and ARM right now. If you are thinking about flipping within 2-3 months, the payment difference isn't that great (maybe $30-$40/ month).

Good luck.

best loans for a first flip?

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