House Flipping Loans: The Ultimate Guide

Do you want to flip a home?!

If so, the biggest obstacle — and I mean the biggest obstacle — is obtaining the necessary money for renovations and improvements. 

If you didn’t know already, there are loans geared specifically for house flippers called house flipping loans. 

It’s true!

But are they right for you?

That’s the big question.

In this article, we’ll break down everything you need to know about house flipping loans so that you can make the best decision for your real estate investment.

Let’s get started!

What is House Flipping, and Why Do You Need a House-Flipping Loan?

House flipping is a real estate investment where buyers purchase homes and renovate and remodel them to be resold at a higher price. 

When you buy a house for flipping, it’s not meant to be a long-term venture.

Just like in the television shows you’ve likely seen, the faster you can turn around a home, the quicker you can make a profit. 

Although you’re not buying homes for your personal long-term residency, you still have to fork over the funds to purchase, renovate, and maintain obligations like property taxes while you own the property. 

So, what do you need to budget for when buying a property for flipping?

For starters, you’ll need money to cover: 

• purchase price
• renovation costs
• holding costs
• financing costs
• permits and inspections
• marketing and sales costs
• miscellaneous costs
• an emergency fund
• taxes

Unless you’ve been at this a while and have a lot of cash flow, you’re going to need money from somewhere — and one option is a house flipping loan. 

Advantages of House-Flipping Loans 

House-flipping loans can be valuable tools in being able to get a jumpstart on your flipping goals. 

The advantages of house flipping loans are:

• With a house flipping loan, you can potentially flip more houses or invest more into the property or renovations. 
• When you have a house-flipping loan, you can move through the purchase and renovation project much faster than saving up to self-fund your flipping.
• Tax benefits, because some loans have tax-deductible interest, which saves you money on overall tax costs. 

Disadvantages of House-Flipping Loans 

All house-flipping loans come with some risks, so let’s look at those, too. 

• Over-borrowing, especially if the market takes a downturn, would cut your profits on the back end.
• Interest costs can definitely cut into your profits; all house-flipping loans come with interest costs to factor into your budget. 
• Monthly payments could become a burden if other costs add up more quickly than you’d expected. 
• Any house-flipping loan comes with the risk of making a bad investment, meaning you could suffer losses if you don’t choose a suitable property to flip or have trouble re-selling. 

How House-Flipping Loans Work 

Now that we know the advantages and disadvantages … how the heck do house flipping loans work?

The process of applying for a house-flipping loan is like that of any other loan. 

You’ll have to meet certain lending criteria to qualify for a loan for house-flipping. 

The good news is that once you get your first house-flipping loan and make faithful payments on it, you’re more likely to be considered for larger and more frequent house-flipping loans. 

Here’s what lenders will look at when you apply for a loan for house-flipping. 

Credit score 

Lenders use your credit score to determine how likely you are to repay a house-flipping loan. 

Why? 

They want to be sure that giving you a house-flipping loan isn’t a financial risk for them. 

Income  

Why do lenders need to know how much you make? 

Simply put, the higher your income, the better you’ll be able (theoretically) to pay back your house-flipping loan. 

A higher income also makes you eligible to borrow more. 

Assets  

What you already own factors heavily into what your house-flipping loan will allow you to buy. 

Your assets are part of your overall wealth, and lenders want to know that you have assets as collateral should you default on your house-flipping loan. 

Debt level 

Before they’ll give you money, lenders want to know how much debt you already have and if you’re responsible about repaying it. 

If your debt level is too high, you can kiss your house-flipping loan goodbye.

Business plan  

When seeking a loan for flipping houses, you’ll need to present a business plan. 

Be sure to include at least 10% of the total cost of the property for renovations, in addition to a plan to pay for all the other expenses detailed above. 

Who Offers Financing For Flipping Houses? 

Good news! When you’re looking for financing for flipping houses, there is more than one option available. 

You can try:

• Traditional banks and credit unions
• Private lenders
• Online lending platforms
• Fix-and-Flip lenders (specialize in house-flipping loans)

Be sure to shop around before applying for any loans for flipping houses.

You want to maximize your loan amount and get the best interest rates!

Types Of Loans For Flipping Houses 

Before you go out and apply for house-flipping loans, you should understand the different types of loans available. 

Hard Money Loans 

Hard money loans come from lenders who focus on short-term, high-interest loans, and real estate investing is one of their favorite reasons to loan. 

The nice thing about these loans is that they’re frequently based on property values, not the borrower’s credit score. 

Cash-out Refinancing

Cash-out refinancing is a way of borrowing against an already-existing loan, like a mortgage. 

Because the new loan amount is larger than the old loan balance, it can be used to pay off the old loan to free up the rest of the money for flipping. 

Home Equity 

To get a loan for flipping houses, you can borrow against the equity in your own home. 

The amount you can borrow is based on the value of that home, so the more your property is worth, the larger your house-flipping loan can be. 

Alternatives to House Flipping Loans

If you’re looking to flip houses, but you don’t want to take out a loan — and you don’t have cash on hand — are you disqualified from flipping houses?

Absolutely not!

You can flip houses in a single day without investing a penny of your own money, taking out any loans, or even making a single repair. 

Want to learn more?!

Check out our One Day Flip program today! 

The Bottom Line: House Flipping Loans 

When it comes to securing financing for your house-flipping loan, you have a lot of options — and a lot of decisions to make!

It pays to do your homework and apply for the loans that best fit your needs, budget, and the market where you’re looking to purchase. 

Or, if this article helps you realize that you don’t want to go the route of house flipping loans, check out how you can flip homes without taking any loans!