Using construction loan or traditional financing

Myrtle Beach, South Carolina
Rehabbing & House Flipping
3yFollow

Using construction loan or traditional financing

Joseph Dasmerces
Rental Property Investor · Myrtle Beach, SC · Member since 2017 · 22 posts · 12 votes

Hey everyone quick question looking forward to everyones feedback, 

We have 150k, We are actively searching for a deal to add value too and flip. We have a great relationships with our local bank and wanted to know would it be wiser to take out a construction loan or go the traditional route, When looking to Buy, Reno, & Flip?

1Reply
36 views

Most Popular Reply

John O'LearyPro Member
Lender · Winter Park, FL · Member since 2021 · 737 posts · 412 votes
3y

Hey Joseph,

I deal strictly with the construction loan (Hard/Private Money) side so I can shed some light on possible terms/ expectation but Given your strong ties with your local bank, it would be wise to consult a loan officer for tailored advice. They might have specialized products for flippers or even suggest a combined approach.It's also valuable to discuss the pros and cons of finalizing the deal under an LLC or Corporation, considering both tax implications and legal standpoints.

    Rehab/Construction Loan:

    • - Most lenders offer between 85-90% of the purchase price and cover 100% of the rehab funds.
    • - Rehab funds are typically escrowed, and you'll operate on a draw/reimbursement system. - --- You'll only pay interest on the rehab funds as they're used.
    • - Interest rates generally range from 9.5-11.5% (interest-only) over a term of 12-18 months.
    • - These loans are often granted to an LLC or Corporation rather than an individual.
    • - Unlike traditional loans, Hard/Private money lenders don't base their qualifications on DTI. - - They also don't require tax returns, income verification, or extensive bank statements. --- ---- Moreover, credit checks are typically "soft" pulls for such short-term loans.
    • - The average closing timeframe is around 14 business days.

    Refinancing Considerations:

    • - If you intend to transition the property into a rental, be mindful of the seasoning -requirements for cashing out, especially if you’re switching from a construction loan to a traditional one.
    • - Some lenders offer a DSCR loan right after rehab completion, while others might stipulate a 3-6 month seasoning period before allowing cash out. It's my understanding that most traditional loans require a 12-month seasoning before cash-out refinancing. However, I'd appreciate any corrections or clarifications from other members on this point.

    Traditional Financing:

    • - Interest rates are typically lower than construction loans.
    • - There might be no provision for extra renovation funds. Consequently, you may need to -allocate a considerable portion of your $150k towards the down payment and renovation.
    • - Might have a hard credit pull, and qualify more on DTI (needing more paperwork)
    • - Might require a higher down payment
    [email protected]800-663-4122
    1Reply
    See this reply in the discussion

    5 Replies

    Jump to latestLatest
    • John O'LearyPro Member
      Lender · Winter Park, FL · Member since 2021 · 737 posts · 412 votes
      3y

      Hey Joseph,

      I deal strictly with the construction loan (Hard/Private Money) side so I can shed some light on possible terms/ expectation but Given your strong ties with your local bank, it would be wise to consult a loan officer for tailored advice. They might have specialized products for flippers or even suggest a combined approach.It's also valuable to discuss the pros and cons of finalizing the deal under an LLC or Corporation, considering both tax implications and legal standpoints.

        Rehab/Construction Loan:

        • - Most lenders offer between 85-90% of the purchase price and cover 100% of the rehab funds.
        • - Rehab funds are typically escrowed, and you'll operate on a draw/reimbursement system. - --- You'll only pay interest on the rehab funds as they're used.
        • - Interest rates generally range from 9.5-11.5% (interest-only) over a term of 12-18 months.
        • - These loans are often granted to an LLC or Corporation rather than an individual.
        • - Unlike traditional loans, Hard/Private money lenders don't base their qualifications on DTI. - - They also don't require tax returns, income verification, or extensive bank statements. --- ---- Moreover, credit checks are typically "soft" pulls for such short-term loans.
        • - The average closing timeframe is around 14 business days.

        Refinancing Considerations:

        • - If you intend to transition the property into a rental, be mindful of the seasoning -requirements for cashing out, especially if you’re switching from a construction loan to a traditional one.
        • - Some lenders offer a DSCR loan right after rehab completion, while others might stipulate a 3-6 month seasoning period before allowing cash out. It's my understanding that most traditional loans require a 12-month seasoning before cash-out refinancing. However, I'd appreciate any corrections or clarifications from other members on this point.

        Traditional Financing:

        • - Interest rates are typically lower than construction loans.
        • - There might be no provision for extra renovation funds. Consequently, you may need to -allocate a considerable portion of your $150k towards the down payment and renovation.
        • - Might have a hard credit pull, and qualify more on DTI (needing more paperwork)
        • - Might require a higher down payment
        [email protected]800-663-4122
        1Reply
      • Stephanie P.Pro Member
        Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
        3y
        Quote from @Joseph Dasmerces:

        Hey everyone quick question looking forward to everyones feedback, 

        We have 150k, We are actively searching for a deal to add value too and flip. We have a great relationships with our local bank and wanted to know would it be wiser to take out a construction loan or go the traditional route, When looking to Buy, Reno, & Flip?


         Save as much of your cash as possible.  Use hard money for the acquisition and renovation and then sell it.  Rinse and repeat.  Not sure if you'd get 85-90% (it depends on your experience), but 80% on the acquisition is certainly possible.

        1Reply
      • Bill J FayPro Member
        Lender · San Diego · Member since 2023 · 216 posts · 209 votes
        3y

        I would ask your conventional bank what the process is to secure a fix and flip loan with them. Using a hard money lender will allow you faster speed, higher leverage, and greater flexibility in your loan. BP has a great list of HML's that you can chat with and compare your conventional loan with.

        Find a Hard Money Lender - Best Hard Money Lenders Near Me (biggerpockets.com)

        1Reply
      • Joseph Dasmerces
        OP
        Rental Property Investor · Myrtle Beach, SC · Member since 2017 · 22 posts · 12 votes
        3y
        Quote from @John O'Leary:

        Hey Joseph,

        I deal strictly with the construction loan (Hard/Private Money) side so I can shed some light on possible terms/ expectation but Given your strong ties with your local bank, it would be wise to consult a loan officer for tailored advice. They might have specialized products for flippers or even suggest a combined approach.It's also valuable to discuss the pros and cons of finalizing the deal under an LLC or Corporation, considering both tax implications and legal standpoints.

          Rehab/Construction Loan:

          • - Most lenders offer between 85-90% of the purchase price and cover 100% of the rehab funds.
          • - Rehab funds are typically escrowed, and you'll operate on a draw/reimbursement system. - --- You'll only pay interest on the rehab funds as they're used.
          • - Interest rates generally range from 9.5-11.5% (interest-only) over a term of 12-18 months.
          • - These loans are often granted to an LLC or Corporation rather than an individual.
          • - Unlike traditional loans, Hard/Private money lenders don't base their qualifications on DTI. - - They also don't require tax returns, income verification, or extensive bank statements. --- ---- Moreover, credit checks are typically "soft" pulls for such short-term loans.
          • - The average closing timeframe is around 14 business days.

          Refinancing Considerations:

          • - If you intend to transition the property into a rental, be mindful of the seasoning -requirements for cashing out, especially if you’re switching from a construction loan to a traditional one.
          • - Some lenders offer a DSCR loan right after rehab completion, while others might stipulate a 3-6 month seasoning period before allowing cash out. It's my understanding that most traditional loans require a 12-month seasoning before cash-out refinancing. However, I'd appreciate any corrections or clarifications from other members on this point.

          Traditional Financing:

          • - Interest rates are typically lower than construction loans.
          • - There might be no provision for extra renovation funds. Consequently, you may need to -allocate a considerable portion of your $150k towards the down payment and renovation.
          • - Might have a hard credit pull, and qualify more on DTI (needing more paperwork)
          • - Might require a higher down payment

           This was very valuable thank you John

          1Reply
        • Michael Mannino II
          Michigan / South Carolina · Member since 2021 · 53 posts · 32 votes
          3y

          Hey Joseph! Let's connect!

          0Reply
        Join the conversationCreate a free account to reply, vote on answers and follow this thread.
        Log InJoin for Free