Loans to Flip Houses – Banks or Hard Money?

Can I get loans to flip houses?

Yes, you can get loans to flip houses, but you’re probably not going to get them from your local bank or credit union. Some highly qualified investors may have good luck, but many mainstream lenders have stopped making loans for investment property entirely. It’s often easier and more advantageous to work with a hard money lender, even if it costs a bit more.

To be frank, most people don’t qualify for bank loans to flip houses. There are a zillion reasons, but first and foremost banks are looking at you, the borrower. This means they mostly care about 2 very key things.

Top Two Bank Qualifiers

1. Historic income, debt to income (DTI), and tax returns. If you don’t qualify for the loan in a conventional sense, you won’t get a conventional loan. Even if you’re getting a smoking deal, loan to value (LTV) is 30%, and you stand to make $500k, many banks will still say no if your tax returns don’t show the kind of consistent income they want to see. DTI is another factor that banks weight heavily and hard money lenders don’t.
2. Credit. Hard money lenders offer financing to a wide range of credit scores, but banks often require 700+ scores to qualify for a loan to flip houses. Also they are much less willing to offer you financing for multiple properties. Hard money lenders are far more liberal about credit and multiple outstanding loans.

If you do qualify for a bank loan, and you have the energy to jump through all their hoops, they do have the lowest rates for investment property. Hard money lenders are starting to be more competitive though – Little City has rates starting at 8.5% – not bad for an asset-based loan that doesn’t qualify you based on income or DTI. Even if you do qualify, traditional mortgage loans can be impractical for flipping houses for several important reasons.

Downsides of Bank Financing

• Slow closing process. Banks are used to a 45+ day window to close, and even then, it’s very common for them to need days (or even weeks) beyond that. If you’re buying a flip property at a discount, the seller might not be patient enough for a conventional lender.
• After Repaired Value (ARV). Few conventional lenders will consider the ARV when they evaluate your loan. They will usually only consider the current condition of the property, not the potential value once repairs are complete. Hard money lenders regularly lend based on ARV and lend repair funds to flippers. ARV and valuation is always a challenge for new investors.
• Property Condition. If the current condition is poor, this can affect your ability to borrow dramatically. It’s often difficult to borrow for improvements at all from a traditional mortgage lender. This ups the cash required for this kind of loan significantly.
• Loan to Cost (LTC). Conventional lenders often have a minimum LTC of 10-30%. Put simply, that’s 10-30% of the purchase/contract price required in cash down at closing. Even if you have the cash available, using more of it could limit your safety net and your ability to do multiple deals. Hard money loans are possible with no cash.
• Multiple simultaneous deals. Hard money lenders will lend on multiple deals at a time, but a conventional lender will probably only approve one. Little City offers lower rates to borrowers who bring multiple deals. 

Hard money lenders offer these advantages on loans to flip houses, at a price. Rates are typically higher with a hard money lender. Keep in mind flipping a house is a short-term project, so the interest rate is less significant than it would be on a 30-year home loan. Sometimes the opportunity to do the deal is worth the cost!

Advantages of Hard Money Loans to Flip Houses

• Fast approval and fast closing. 5 business days is entirely possible from contact to close, and 2 weeks is generous for a hard money lender. You’ll know within a couple of days what Little City can offer you. We never demand last minute documents and there’s no red tape.
• Asset-based lending. No income statements or tax returns required. Super simple 1-page application.
• ARV and condition. Hard money lenders will consider the ARV of the property. You can borrow for improvements and properties are not rejected due to poor condition.
• LTC. Many hard money lenders, including Little City, do not have a loan to cost (LTC) requirement. 100% financing is possible.
• Credit. A good credit score may get you a better rate, but you’re unlikely to be rejected for a hard money loan based on credit. We allow 100% financing and we allow multiple simultaneous projects.
• Interest-only payments. Most bank loans will be amortizing loans with principal and interest. This limits your cash available for your flip and for other deals.

Once you have a flip deal under contract, let us know – we can help! Rates start at 8.5% and we’re local, direct hard money lenders. 

Contact us here with general questions or fill out our online application here.