What Is the Difference Between Fix and Flip Loans and Real Estate Financing?

House flipping can bring you many profits. An essential part of remodeling and reselling homes is getting the right financing to purchase and improve properties. Many first-time flippers wonder what type of loan they should choose for this purpose. What makes fix and flip loans different from other types of real estate financing?

The Basics of Fix and Flip Loans

This type of loan focuses on helping property investors purchase real estate quickly and easily. Fix and flip financing can speed up closing times and help with snapping up valuable or desirable properties before other parties have the opportunity. This can be very important in the case of foreclosures and properties in highly sought-after neighborhoods.

Types of Fix and Flip Loans

There are several main types of fix and flip financing. Some of the most popular include bridge loans and hard money loans. There are also lines of credit for investment properties and home equity lines of credit for house flippers that have significant equity in their primary residences.

Each of these options offers specific benefits to consider. For example, hard money loans are backed by a real estate property and provide ample financing for buying and remodeling the real estate. This can help with real estate in poor condition that needs to be improved before selling.

Property lines of credit are offered against the investment property and provide extensive working capital. They can successfully cover remodeling costs and purchase costs of properties.

The advantage of lines of credit is their flexibility. You only pay interest on the amount used, and you can put the funds toward any item, from stainless steel appliances to the construction of an outdoor kitchen.

Bridge loans are some of the fastest fix and flip loans to be approved. They’re for short-term needs only, but their speed makes them desirable at the closing stage.

You can use a bridge loan to purchase property right away without having to wait for the previous home to sell. Once the last property sells, it’s easy to pay off the outstanding loan balance. You can also transfer the balance from a bridge loan to long-term financing such as a mortgage once it goes through.

The Benefits of Fix and Flip Loans Versus Traditional Loans

Conventional real estate loans offer lower interest rates than bridge loans and hard money loans, but they’re also much more unwieldy. It takes months sometimes for approval, and by that time, your ideal property may have disappeared. Also, it’s nearly impossible to get a traditional loan for fixer-uppers and other risky properties.