Financing a Fixer-Upper

[Karen Stone]

I'm new to the flipping houses business. We haven't started yet, and wondering how to go about everything. We currently live in our own house that we have two additional reno loans (therefore, we have 3 total loans - a mortgage, an LOC, and a regular loan). From what we know, no one wants to be the "3rd lien", so to get this started, we are hoping to refinance the house we own, and then buy our first fixer-upper.

We would not have the funds out right, so we'll obviously need to take out a mortgage for that house.  SO...my question is:  how does it work when you buy a house, knowing you need to make renovations?  If, for example, you buy a house for $100,000, and expect the renovations to cost $25,000...would the bank just issue you a $125,000 mortgage?  Or is there a special type of mortgage?  And do they just give you the $25,000?  

That may be a silly question, but any advice would be very helpful!  Thank you!

[Nick Baldo]

Hi Karen, 

If the fixer-upper is not your primary residence, you will likely need to seek private lending to complete the project. Conventional banks tend to shy away from fix and flip projects that will not be lived-in by the owner. One reason for this is that your typical fixer-upper is in rough shape...not appealing to a bank. 

However, if your credit is solid and you have the W-2/ Tax return income to justify a mortgage, it is not impossible to attain bank financing. The construction portion of the loan is where you may run into trouble. To my knowledge, construction loans almost always require the property to be a primary residence. 

If interested, check out this article on finding private lenders: http://www.incomedigs.com/finding-private-lenders-...

I'd be happy to answer any specific questions if you have them.