Key Points to Remember When Getting House Flipping Loans

Finding the right house flipping loans can be one of the most stressful parts of flipping a house. For many house flippers, the actual work of finding a house and completing renovations is the fun part. Dealing with the money is contrarily devoid of anything resembling fun.

However, the whole point of flipping houses is to make a profit, so it’s vital to pay close attention to your rehab real estate loans and make sure that you’re getting the best deal possible. Here are three key points to remember when choosing your house flipping loans:

Not All Lenders are Created Equally

Who you choose as your lender can make or break your house flipping experience. Some hard money lenders, for example, are just looking to make a quick buck off of you. At the other end of the spectrum, banks may be unwilling to work with you at all or only at an extremely slow pace. It’s vital to find a lender that is well-respected, trustworthy, and as invested in your success as you are.

Many house flippers prefer licensed private money lenders for just this reason. Private money lenders are usually able to offer loans ranging from a few thousand dollars to upwards of a million dollars. They have a lot of flexibility with regard to who they are able to work with and the terms they can provide. Usually, when you work with a private money lender on multiple flips, you should be able to negotiate a better loan rate as you become more experienced.

If you’re brand-new to house flipping, hard money loans might be easiest for you to obtain, particularly if your credit score isn’t great. Just make sure that before you accept any loan, you can actually afford it. If Lender D is offering terms that you couldn’t get with Lenders A, B, or C, step back and ask yourself why. What do they have invested in you? And what do you stand to lose if things go south?

Pay Attention to the Fine Print

At first glance, many house flipping loans may look exactly alike. But if you dig a little deeper, you’ll find terms and conditions that could have a huge effect on your ultimate bottom line. For example, most house flipping loans have points attached to them. One loan point equates to one percent of the total loan. This is a fee that you will have to pay in addition to any interest that you owe. In most cases, private lenders collect loan points at the end of a flip. When comparing one loan to another, keep in mind that there is a very big difference between one loan point and two or three.

You should also pay close attention to factors like the total loan term and the percentage that you will be required to put down on any fix and flip investment. Some hard money lenders will cover the entire cost of a flip with a home loan, but most private lenders require that the house flipper front a portion of the purchase price. This is a good faith measure that shows that both parties have a stake in the investment.

Be Prepared to State Your Case

If you’re expecting to just walk up to a lender and get access to all the capital you need, it’s time to reset your expectations. Private money loans (and hard money loans, especially) can be easier to obtain than bank loans, but that doesn’t mean lenders will hand them out to anyone. You should do your research before beginning the application process; first, to find a lender that suits your needs; and second, to make sure that you have the knowledge, financial wherewithal, and necessary support to succeed as a house flipper.

If your credit score is less than perfect, the right lender might still loan to you if you can show why your credit has taken a few hits and convince them of your financial savvy. Likewise, if your credit is perfect but you’ve never flipped houses before, you should be prepared to talk numbers on your planned investment and show that you have done your homework.