Money To Flip A House - Where Will It Come From?
One of the main questions on the minds of many prospective house flippers is, where do I get the money to flip a house? While having knowledge of the various steps required and being organized and hard-working should get you successfully through the process, you've got to have money to get started.
They don't seem to cover this subject too well on the TV flipping shows. You'd be forgiven if you thought all a person has to do is just stroll into their local bank and say they're looking for a house flipping loan. Unfortunately, it's not that easy. Even in the recently-ended days of easy loan money, many banks were loath to loan money for a short-term fix and flip project. It's even harder now that a lot of those easy loans have come back to bite the lenders - but there are still some banks that deal in this type of loan. You will need to have a great credit score to qualify, however.
While we're on the subject, having a good credit score will help you regardless of where you go for your house flipping loan. Make it a point to regularly check your credit report, which you can do for free once a year at each of the three national credit agencies by going to http://www.annualcreditreport.com. While there, consider paying the small extra charge to get a copy of your credit score. While each company has a slightly different way of computing credit scores, anything over 700 is good.
Assuming that you'll be purchasing the house to flip and sell (as opposed to living there for two years to make it your principal residence and avoid the tax bite), your best bet would probably be alternatives to a traditional fixed rate mortgage. You're really only concerned with the carrying costs, and less worried about paying down the loan during the renovation. For these reasons, something like an ARM (adjustable rate mortgage) may be a good choice for a flip. You will hopefully be selling the house before a rate adjustment kicks in, and ARMs usually carry a lower rate than fixed rate loans. Also good for quick house flip financing are interest only loans. Your payments will cover only the interest on the loan, but that's of little consequence in a flip situation, and will result in lower monthly payments during the holding period. Similarly, something called a 'balloon payment' loan can be good for a house flip. This loan is precisely what it sounds like - you have no payments due for a period of time, then you need to pay off the entire mortgage or a large portion of it. You must be pretty sure that the house will sell, however, because if the balloon payment comes due and you haven't sold the house and don't have another way to get the funds, you will lose the property. There are also private investors looking to put their money to good use. They want better returns than they can get in the stock market or other traditional investments. You may see this type of loan referred to as 'hard money'. It takes a little work to hook up with these investors, and you'll usually find they only want to work with experienced flippers. So this may not be a viable source of funds for your first flip, but once you've got some experience under your belt and shown you know what you're doing, you may have to fight them off. Regardless of where you get the money to flip a house, be sure the loan allows for prepayment. You never know how things will work out, and this flexibility is mandatory.
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