Television shows about house flipping can make it look easy, but when it comes to carrying out such an enterprise on your own, you may discover a lot more goes into it than appears on camera. One of the most difficult steps in the process can be securing adequate financing.
Typically, a fix-and-flip loan will be different from a regular home improvement loan. Not every fix-and-flip job will qualify for traditional financing, and your credit may not be good enough credit to get your application approved.
If you’re seeking financing for this kind of investment, there are options aside from conventional loans. Here are a few ways you can finance your fix and flip.
1. Home Equity Line of Credit
A home equity line of credit resembles another credit card more than a traditional loan. Your bank will issue you a line of credit based on the value of your home or property.
Rather than taking everything out at once, you can use relatively small amounts at a time. For example, you might take out $1,000 initially to update the exterior, then $5,000 later for a bathroom remodel — and eventually $10,000 for a kitchen redo.
You’ll pay interest only on the amount you’ve taken out. This is an especially attractive option in the case of slow renovations. If you go this route, you won’t have to pay interest on a portion of the loan you haven’t yet withdrawn and spent.
2. Traditional Bank Financing
Although many house flippers are skeptical about using traditional bank financing, that can be an option as well. Experienced flippers tend to avoid it because, sometimes, interest rates can be higher for a traditional loan or there might be a penalty if you pay it off early.
Traditional financing also hinges on your own personal credit score and debt ratio. Even if the purpose is closer to a business loan than a personal one, some financiers are hesitant to offer a loan to applicants who have an existing mortgage.
However, if you feel more comfortable going for traditional financing and you qualify, this might be a preferable option. Discuss the matter with a trusted banker to see if this could be…