Funding Your Fix and Flip – Private and Hard Money Lending Terms

We previously covered a popular strategy we use to help our real estate investor clients obtain the 20% liquid capital needed for the down payment to fund fix and flip property acquisitions in our previous blog. This blog covers the general terms available from private lenders for financing fix and flip properties.

Loan To Value:

Many private lenders and hard money lenders will loan up to 90% of the Loan to Value (LTV) towards the acquisition of a fix and flip property depending on the investors’ credit score and experience level. Newer investors will usually be financed up to 80% LTV. The higher the investors credit score, and the higher the number of previous fix and flips completed, or rental properties owned, the higher the LTV. Investors with 750+ credit scores and 5 or more previous fix and flips or rental properties will typically qualify for the maximum loan to value.

Rehab Costs & Maximum Leverage

The rehab costs of the fix and flip are generally financed as well. 100% of the rehab costs are typically financed in the loan.

The maximum leverage with the purchase price and the rehab costs typically cannot exceed 80% of the Loan To Cost (LTC) or 70% of the After Repair Value (ARV). Again, the higher the investor’s credit score and the more experience the investor has may result in a higher maximum leverage up to 95% LTC and 75% ARV.

Term:

The standard term for fix and flip loans is 12 months. Some lenders may offer 6-month, 18-month, 24-month, or up to 36-month term options.

Eligible Properties:

Eligible properties are typically attached or detached single family residences, 2 – 4 unit residences, condos, and townhouses. Some lenders will have programs for 5+ unit multi-family properties.

Occupancy:

Most private and hard money lenders will only lend on non-owner occupied properties that are for business purposes only (real estate investments).

Amortization:

Fix and Flip loans are typically interest only with a fixed rate for the term of the loan.

Pre-Payment Penalty:

Many Fix and Flip loans do not have a pre-payment penalty and can be paid off at any time. Some may have a short pre-payment penalty period, for example 90 days. This this scenario, a minimum of 90-days of interest must be paid if the loan in paid off prior to the end of the term.

If you have any questions about financing fix and flip properties, feel free to give us a call or email. We’d be happy to talk through your specific investment property scenarios and your financing options.