Is a fix and flip loan the best option here?

Question

Is a fix and flip loan the best option for this scenario? The property is being bought at a discount and has equity built in already... no need for funding to do renovations.. is there any other forms of financing that is available for a quick clean flip like this?

David M. · Answer

@Samantha Schiabor Will the property not qual for a conventional loan?  Will you close on the sale (after reno) within 6months?

A fix n flip type loan may be the "easiest" but a conventional loan will still be cheaper.  Better rate and usually no points.

Bunch of factors to consider honestly.  Happy to chat.  Good luck.

Jay Hurst · Answer

What we do on this case is lend up to 75% of the AS-IS value instead of using the purchase price for down payment. For example, assuming current as-is value is 250k but you are buying it for 200k. We would lend 75% of the 250k which is 187,500 so you only need 13,500 plus closing costs to buy the house.  Other purchase programs will require the 20-25% of the 200k. So, best case you need 40k plus closing costs. (20% of the 200k purchase price.)

Matthew Crivelli · Answer

@Samantha Schiabor

A hard money loan would work here. Specifically a stabilized bridge product. It's a 12 month loan that is interest only and doesn't have a prepayment penalty. You could purchase the property at the low purchase price, then preform a cash out refinance after 90 days to pull the equity.  For this to work, there needs to be good amount of equity to justify taking two loans / paying IO for 3 months & you need to make sure the property will qualify for the 30Y loan on the back end. I would be happy to take a look at both ends for you!

Givo Aghasi · Answer

@Samantha Schiabor You can use a bridge loan (12,18,24 month) interest only option with no rehab and prepayment penalty to purchase the property. Most lenders can go up to 75%-80% LTV depending on experience and fico score.

Jim Unsworth · Answer

I am looking at a SFH that would qualify for conventional financing. The LO told me that I could not use conventional if I sell under 6 months because they would get charged back. Does this sound right? Can I sell from a conventional under 6 months?

Tony Savage · Answer

Take a look at private money Samantha. Meet with someone that lends out his or her own cash, present the deal to them (seems like it's a pretty clean deal) and they may want to work with you. You don't have to wait as long to get the funds and the terms are usually better as well.

David M. · Answer

@Jim Unsworth That's completely correct.  While Federal law prevents prepayment penalties, the lender and loan officer are on the hook if your loan is extinguished in 6 months (tehcnically 6 payments).  Remember, your loan is sold off to Fannie Mae.  The profit that the lender makes on the sale is contigent that the Note is alive for 6 months (same for auto loans for some reason).  Since they can't charge you, the lender's money is clawed back AND so is the loan officer's commission.  So, that's pretty rotten.

No reason to mess around with somebody's commission.

6mo can go pretty quick...  Remember, technically I believe its 6 payments and its when the closing occurs (which is when the Note is extinguished/paid off).

Nick Belsky · Answer

@Samantha Schiabor

I work with a few investors who will use a fix and flip loan for deals like this for a few reasons:

1. They can get in for as little as 10% down.  Yes, you'd need to setup a budget and ARV, but I've yet to ever see any lender that requires you to actually make a draw.

2. No prepayment penalties, means you can refinance pretty much anytime.  Keep in mind though, with no rehab completed, you may need to wait 3-6 months to season before you can refi with cash out.  If rate and term, there is usually no seasoning required.  If you do rehab, even as little as $5-10k, you can often refi out immediately with no seasoning.  Also, if you plan to go conventional, there is no seasoning requirement for rate and term, but if you are looking to pull some cash out of that equity, you will have to season for 12 months.

3. The HML gives you the option to help secure the purchase contract as you can close very quickly and with no real requirements for the condition of the property.  E.g. if there is a broken window, an appraiser for DSCR, Conventional, FHA, etc... may name the appraisal value as "subject to" the repair being made.  Most every perm lender will want these remedied and the appraisal to be revised to "as is" before they will finance it.  With HML, many do BPOs and repairs such as this are not a factor.

4. Wholesaling.  A few of my clients will find deals at discounted price with quite a bit of equity in them, then use the HML to take it down then sell it immediately at a premium, often before their first HML payment ever becomes due.

Just a few things that I see people do.

Cheers!

Sophia Buesing · Answer

Fix and flip loans are so easy and fast to do. For a quick flip you don't have to worry about any prepayment penalty or more paperwork.

Jacob Sherman · Answer

Yes definitely . If don't need construction funds can just do a bridge loan no income and no doc with 30% down for upto 24 months interest only

Is a fix and flip loan the best option here?

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