Submitted By: Kenneth W. Board, SR. Lending Relationship Manager | Campos Capital Group | www.CamposCapitalGroup.com
Why Get a Fix and Flip Loan?
Unlike conventional mortgages, hard money Fix and Flip loans are specifically structured to allow real estate investors to quickly purchase, renovate, and sell or refinance properties. For example, a conventional loan will take 45 to 60 days to close. A Hard Money Fix & Flip loan will take 10 to 25 days to close. Further, unlike bank loans, hard money Fix and Flip loans are underwritten to future value and normally include a renovation reserve. The renovation funds are disbursed to the Borrower over the course of the project. Once the renovations are complete, the loans are either paid off through the sale of the property or a refinance of the loan.
Real Estate Investors will use a Hard Money Lenders for a Fix and Flip loan, because of speed and the ability to borrow renovation funds. Another reason is a Hard Money Lender cash- flows the investment property, not the individual. It should be noted however, the upfront fees and monthly payments will be higher than a conventional mortgage because of the risk associated with these types of loans. Additionally, the loan has a short maturity of 6 to 24 months.
How to Get a Fix & Flip Loan?
Obtaining a Fix and Flip loan can be easy if you understand the underwriting process and are prepared to provide the appropriate underwriting material to the Hard Money Lender quickly.The first step in the process is to identify Hard Money Lenders that specialize in funding Fix and Flip loans in your area. Once you have connected with a Fix and Flip Hard Money Lender, like Campos Capital Group, they will want to know if you have a property under contract to purchase. If you do not have a property under contract to purchase, they may complete a light underwrite and pre-approve you for a Fix and Flip Loan
If you want to price out a property to get terms, they will request the following items:
- Loan request with the Property Address
- Purchase Price
- Rehab Costs
- After Repair Value (ARV)
- Mid-Fico Score
- Number of experiences last 3 years (How REI properties sold or own)
If you want to proceed with the loan, they will request the following:
- The Purchase Contract
- Completed Loan Application
- Project Budget and Scope of Work
- List of comparable sales substantiating your After Repair Value.
- Preliminary Title Report / Escrow Contact
- 2 months bank statements (personal & business)
- List of Borrows experience (last 3 years)
Remember, a Hard Money loan cash flows the property, not individuals, so you don’t have to submit tax returns and pay stubs.
The second step in the process may include ordering a 3rd party appraisal once you have submitted all the diligence material, the Hard Money Lender has completed their site inspection, and you have received approval is to sign the loan documents and close on the purchase.
Things to Consider when getting a Fix and Flip Loan
There are several items to consider when obtaining a Fix and Flip loan. The first is to ensure the hard money Fix and Flip Lender that you intend to engage has a track record of successfully funding hard money Fix and Flip loans in your market.
Another consideration is the amount of leverage that you will need for the project. Many Hard Money Lenders will promote low rates, but their loans may only fund 50% to 70% of the purchase price or they consider personal income and credit in their underwriting. Other Fix and Flip Hard Money Lenders promote high leverage loans, such 100% purchase and 100% renovation loans, but fail to disclosure they cap their loan at 70% of the After Repair Value, which would be significantly less than the 100 / 100 structure, or the cost of the loan doesn’t leave any profit for the Borrower.
Conclusion
A Hard Money Fix and Flip loan is great option for real estate investors are seeking a quick and flexible option to purchase and renovate a single family or multi-family property. Because the Lender is less concerned about the Borrowers DTI and cash flow and more concerned about the real estate and the Borrower’s ability to add value, their underwriting process is much more lenient.