Becoming a house flipper can be a lucrative way to create an additional stream of income if you have the time and money to invest in renovations. Hard money fix-and-flip loans make it possible to fund these types of projects using the property you plan to buy as collateral.
A hard money loan might appeal to someone who’s venturing into flipper territory for the first time or wants to buy an investment property without draining their cash reserves. Read on to see how hard money fix-and-flip loans work, the pros and cons, and where to find them.
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How do hard money fix-and-flip loans work?
A hard money fix-and-flip loan is a short-term loan you can use to purchase investment property. Hard money loans are secured by the property and are sometimes referred to as bridge loans because they’re designed to bridge buyer funding gaps. Hard money lenders tend to cater to house flippers, rental property owners, and business owners who need to buy commercial properties.
You can use hard money fix-and-flip loans and traditional fix-and-flip loans to buy investment properties and fund renovation costs. But they have an important difference: Qualification for a hard money loan tends to focus on the characteristics of the property, but fix-and-flip loans look at the property and the borrower, including credit histories.
Here’s how hard money fix-and-flip loans work:
- An investor identifies a property they want to buy and then approaches a hard money lender for a fix-and-flip loan.
- The lender evaluates the property‘s current value and estimated resale value to determine how much to lend.
- If the loan is approved, the lender may supply 80% to 90% financing, leaving the investor to put up the remaining 10% to 20% of capital.
- The lender turns over the funds to the investor, who can use them to purchase the property and make improvements.
- The investor makes interest-only payments monthly, repaying the loan in full when the property sells.
Most hard money loans have repayment terms extending from six to 18 months, but some may extend to 24 months. Interest rates are often fixed and may be much higher than traditional mortgage rates.
This loan option could be best for investors who need fast cash because closing times are often shorter than other types of funding. A hard money loan may also appeal to investors who can’t qualify for other financing based on their credit history.
Where to get hard money fix-and-flip loans
Navigating the labyrinth of hard money fix-and-flip loans can be a challenge. To help guide you, we’ve compiled five lenders that excel in specific areas.
Whether you’re seeking attractive borrower incentives or need quick funding, one of these companies could meet your needs. We’ve listed them from highest maximum loan amounts to lowest.
| Lender | Loan amounts |
| Capital Funding Financial | $75,000 – $25 million |
| New Silver | Up to $5 million |
| Kiavi | $100,000 – $2.5 million |
| AMZA Capital | $50,000 – $2.5 million |
| OnDeck | $5,000 – $250,000 term loan |
Capital Funding Financial: Best for loan amounts
- Highest loan amounts in the industry
- Quick approval for large loans
- Ensures customer satisfaction with personalized service
Capital Funding Financial can provide prospective borrowers with substantial loan amounts, surpassing most competitors in this regard. It promises fast approvals for larger loans, reducing the waiting time that can plague fix-and-flip investors. It also guarantees personalized service to each customer, ensuring individual needs are met.
Loan approval can be an arduous task for borrowers seeking grand-scale fix-and-flip loans. But with Capital Funding Financial, the process is faster even for large loan amounts. This feature, along with its top-notch customer service, certifies it as a reliable choice for such ventures.
New Silver: Best for borrower incentives
- Variety of attractive incentive programs
- Competitive interest rates
- Free online resources
New Silver stands out for its substantial borrower incentives. This lending institution provides a library of free resources for borrowers, setting them up for success in their fix-and-flip endeavors. Returning customers also get a discount on future loans.
From competitive interest rates to its unique incentivizing system, it remains committed to ensuring customer satisfaction for novice and experienced borrowers alike.
Kiavi: Best for real estate specialization
- Specializes in real estate financing
- Personalized loan options for each customer
- Ensures quick loan disbursement
Dedicated to real estate financing, Kiavi ensures specialized, comprehensive service to borrowers. It provides customized loan options catered to individual requirements, giving borrowers the flexibility they need. It also promises quick loan disbursement, ensuring funds are available when needed.
The value of specialized real estate financing is evident in Kiavi’s approach. With its personalized loan options and speedy loan processing, getting funds for a fix-and-flip project is efficient, making it a desirable lender in this market segment.
AMZA Capital: Best for experienced flippers
- Rehab, construction, and bridge loans
- Approval in as little as two hours
- Skilled financial advisors for experienced flippers
AMZA is best for experienced flippers or first-time flippers working with a mentor or licensed contractor. Offering rehab, construction, and bridge loans, it caters to a broad range of project needs.
Its quick approvals make it efficient, and its skilled financial advisors can provide valuable insights to those with experience in hard money fix-and-flip loans.
OnDeck: Best for fast funding
- Quick loan approvals and funding
- Flexible repayment terms
- Supports customers with resourceful online service
OnDeck is renowned for its speed in loan approval and funding—a crucial feature for investors with urgent needs. It provides flexible repayment terms, allowing borrowers to select the best option for their financial situations. It also has robust online support, ensuring customer queries are addressed promptly.
In the fast-paced world of fix-and-flip investing, OnDeck’s speedy loan processing is a key asset. Coupled with its flexible repayment options and supportive online service, it remains a reliable choice for those who prioritize quick funding.
Pros and cons of hard money fix-and-flip loans
Hard money fix-and-flip loans are like any other type of financing—they require careful consideration of the advantages and disadvantages. If you’re thinking of tapping into hard money loans to fund your first (or next) property flip, it’s helpful to look at both sides.
Pros
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Quick closing
It may take anywhere from 30 to 60 days to close on traditional property financing, but hard money loans often close in a much shorter time frame. Depending on the lender, you may be able to secure funding in as little as one week.
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Easier qualification
Hard money lenders are often more interested in the details of the property than your credit scores, income, or debt-to-income ratio (DTI). That could make it easier to get approved for financing, even if you have less-than-perfect credit.
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Interest-only payments
As with traditional fix-and-flip loans, hard money loans may require interest-only payments during the loan term. That means paying less cash out of pocket during renovations and while you wait for the property to sell.
Cons
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High rates
Hard money fix-and-flip loans can be more expensive than other types of property financing because they present a greater risk for the lender. It’s not uncommon to see rates in the double digits for these loans.
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Down payments are standard
It’s possible to find fix-and-flip loans that offer 100% financing, but most hard money loans expect the borrower to have skin in the game. So, you’ll need to be prepared to bring money to the table when buying a fixer-upper.
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Shorter terms
Most hard money loans give you months to repay what you owe instead of years. You need to be confident you can flip the property before the loan term ends to ensure you can repay it.
Expert review question
From a financial planning perspective, what are the key risks associated with hard money fix-and-flip loans, and how can investors effectively manage these risks?
Our expert’s take on the risks of hard money fix-and-flip loans
Major risks and challenges can present themselves before or during the loan process. First, when you are renovating a property, you never know when or whether you will run into unexpected repairs. These unexpected repairs may be costly or delay your renovation project and put you into a time frame past your loan length. Two, these loans are traditionally measured over months, but fluctuations in the real estate market can affect your project. It can be difficult to predict when these will occur, but the market can soften by the time you wish to sell your renovated property, causing you to collect less of a profit than anticipated. Third, real estate investing requires a significant amount of time and effort, which may incur unforeseen time constraints. To help mitigate these risks, you must find the right property and plan for contingencies. This may include additional help or a contractor who can assist with unknown repairs. Have additional funding or monies ready in case you need it. The goal is to go into a project with a plan and manage the renovation process the best you can. Planning will help you through most issues, but by taking these steps, you can be as ready as possible for those you didn’t anticipate.
How to get a hard money fix-and-flip loan
Hard money loan requirements vary by lender, and it helps to know how applying and getting approved works. Here’s a step-by-step guide to getting hard money fix-and-flip loans.
- Estimate the project budget. Your lender will expect details about the project, including the property’s purchase price and the total cost of renovations. You’ll also need to provide a breakdown showing how much capital you’re putting up to fund the flip. If you can provide them with the information, the lender may ask for photos of the property as well.
- Estimate your personal budget. If interest-only payments are required, consider how much you can afford. Think about what might happen if the project goes over budget and where the extra money to cover costs will come from.
- Organize your documents. You’ll need certain documents to apply for a hard money fix-and-flip loan, including a valid government-issued ID, bank statements, and proof of income. If you’re applying as a legal entity, such as a limited liability company (LLC), you’ll need a copy of your articles of organization.
- Choose a lender. Hard money lenders are not all alike, and it’s to your advantage to comparison shop. When evaluating lenders, consider how much you can borrow, down payment requirements, and property requirements.
- Apply for a loan. You’ll need to complete the lender’s application and submit any required documentation. Lenders may check your credit, so be prepared to share your Social Security number or Individual Taxpayer Identification Number (ITIN).
- Close the loan. The final step after approval is closing on the loan. You’ll need to sign the paperwork and pay any required closing costs, which may include a loan origination fee.
Hard money fix-and-flip loans vs. alternatives
Hard money fix-and-flip loans aren’t the only way to fund a property flip. Other options include:
- Home equity loans. If you own a home and have sufficient equity in the property, you may consider leveraging it for a loan. Home equity loans can offer favorable interest rates, lower monthly payments, and longer repayment terms.
- Cash-out refinancing. Cash-out refinancing allows you to replace your mortgage loan with a new one and withdraw your equity in cash at closing. You may have a higher mortgage payment going forward, depending on the loan terms.
- Fannie Mae HomeStyle loans. HomeStyle loans allow you to borrow money to buy and rehab properties at low interest rates. Down payment requirements, which are determined by the type of property you’re buying, may be as low as 3% or as high as 25%.
- Private loan funding. If you have friends and family who will lend you money, you might consider borrowing from them to fund a fix-and-flip instead of a bank. You may be able to negotiate a lower interest rate or no interest at all, with no credit check requirements.
Are these options better than hard money fix-and-flip loans? They could be if you don’t have a firm exit strategy for flipping the property or you don’t want to get stuck with a high interest rate. You may also consider hard money loan alternatives if you don’t meet a lender’s down payment requirements.
Our expert advises: Have an exit strategy
It’s important to have an exit strategy to plan for changes. You want to be able to exit higher-cost hard money fix-and-flip loans. One: Sell the property. Two: Be prepared to refinance in case the project takes you longer, or you decide to rent out the property instead of selling it. Refinancing could mean another hard money loan, but ideally, you can look to a traditional mortgage if this will become a longer-term property.
At the end of the day, hard money loans can help you achieve your financial goals. But it’s smart to explore all financing options—and the pros and cons—to ensure you’re making the most informed decision possible.
Hard money fix-and-flip loan FAQ
Are all fix-and-flip loans hard money loans?
No, all fix-and-flip loans are not hard money loans. Hard money loans are a popular choice for fix-and-flip projects due to their fast approval and funding, but you could also use other types of loans.
These could include lines of credit, bridge loans, or cash-out refinance loans. The optimal loan will depend on your individual circumstances, including your credit score, experience with fix-and-flip projects, and the specifics of the property in question.
Do you need good credit to qualify for a hard money fix-and-flip loan?
No, good credit is not a prerequisite for hard money fix-and-flip loans in most cases. These loans tend to be asset-based, meaning the primary factor lenders consider is the value of the property itself, not your creditworthiness.
However, lenders might check your credit history as part of their assessment process.
Can you get a hard money fix-and-flip loan from a bank?
Most banks don’t provide hard money fix-and-flip loans. Such loans often come from private lenders and investors attracted to their short-term nature and higher interest rates.
Banks, with their more conservative lending approach, tend to shy away due to the higher risk and shorter repayment terms.