You've seen the shows, and you're sure that you can be successful as a flipper. But to get started, you need a loan to buy a home to flip. Unfortunately, most lenders only want to work with flippers who have a proven track record of success.
Lenders are less willing to take a chance on a new flipper. So, how do you get a loan so that you can flip your first home and establish some success? Well, you may need to get creative. Try these tactics.
Make sure you have ample money down.
If possible, try to have ample money down. Mortgage lenders prefer to have at least 20% down, and this is a requirement for many conventional mortgage loans.
Keep in mind that the lender is handing you money. If your home doesn't sell, they may be left with a defunct loan and a property that they don't want. It's easier to convince lenders to take this risk if you are also putting some money on the line.
Put up collateral.
The home you flip will be collateral on the loan, but it may not provide enough collateral. For instance, say that you're buying a home for $100,000. You plan to put $50,000 into the home, and you're hoping to sell it for $225,000.
Even if the bank agrees to lend you the $100,000 to buy the home, you still need $50,000 for repair costs. If you have collateral that you can put up, it will be easier to get these funds.
Consider a contract for deed.
You don't necessarily have to rely on a bank for financing. If the home's current owner owns the property outright, you may be able to convince them to carry the loan for you. This is called an owner carry or a contract for deed.
To return to the above example, imagine that the owner signs over their $100,000 home to you. You agree to make monthly payments to them for six months, and at the end of the six months, you'll pay off the balance.
In the meantime, you do the repairs, and you sell the home for $225,000 as projected. You pay off the homeowner for the remaining balance, and you put the rest of the money in your pocket.
Now, you have a down payment and some experience. So, it should be easier to work with a traditional lender for your next round of flipping.
Work with a fix-and-flip lender.
For best results, apply for loans with lenders who are accustomed to working with flippers. Fix and flip lenders use unique algorithms to assess loan applicants. They may be more likely to approve you than a traditional lender.
For more information on fix and flip loans, contact a professional near you.Share