What Are House Flipping Loans?

Loans for house flipping are short-term loans that assist an investor in purchasing and renovating a property to sell it for a profit. These loans usually have a term agreement of 12 – 18 months. Some real estate investors utilize traditional loans or lines of credit to fund their ventures, but the majority of house flipping loans come from private investors or individuals.

House flipping loans are commonly used to acquire residential real estate in foreclosure or at auction. These loans are for financing renovations and improvements to the property and cover other expenditures related to property ownership.



Traditional Home Loans vs. House Flipping Loans

Traditional home loans and hard money house flipping loans are types of real estate loans; however, they have many differences:

Hard Money House Flipping Loan

  • A hard money loan duration is generally between 6 and 18 months.
  • Interest rates are typically 12 to 18%.
  • Hard money loans are short-term investments.
  • The collateral for these loans is the property in question.

Traditional Home Loan

  • The duration of a traditional loan is usually between 15 and 30 years.
  • Interest rates are typically 2 to 4.5% (depending on the buyer’s creditworthiness and the current mortgage rates).
  • A traditional home loan is a long-term loan for a primary or secondary residence.
  • Collateral for a traditional home loan is the borrower’s credit and the purchased property.

House flipping loans are intended to achieve precisely what their name implies: renovate and resell a house in a short period. On the other hand, traditional house loans are for the long-term and are intended to assist the borrower in purchasing a property they are holding onto, such as a rental home or a home they plan to live in.


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Construction Loans vs. House Flipping Loans

If the house you plan to flip requires construction, do you need a construction loan? What is the difference between a construction loan and a house flipping loan? Most house flips require some form of construction and can utilize house flipping loans to cover those expenses. On the other hand, a loan for new construction is typically for building a new home or commercial property or demolishing the property and all new construction. 

Regardless of the differences, many of the loan terms and processes for house flipping and construction loans are the same. This is because hard money loans are often the best choice for both. In addition, opportunities for new construction also benefit from the speed and flexibility of hard money financing.

The Benefits of a House Flipping Loan

There are many benefits of a hard money loan for flipping a house. Below are some of those benefits.

  • Quick Loan Funding: Real estate investors bidding on foreclosures or homes at auction must have funds available quickly. Traditional house loans might take up to a month or more to process and receive funds;  however, hard money loans can make funds available within the same week.
  • Flexible Loan Terms: Private lenders are not bound by the same rigid requirements as traditional lending institutions. As a result, borrowers who do not qualify for standard loans may be able to qualify for a loan with a hard money lender.
  • Reduced Risk: Unlike a standard house loan secured by the borrower’s personal credit and the property being purchased, a hard money loan is solely backed by the property the money is being used for. 

Because of the above differences, it should not be a surprise that hard money house flipping loans are being used for a large portion of the real estate remodeling sector. Additionally, there are advantages for investors.

  • Diversified Portfolios: House Flipping loans are an excellent strategy for investors to diversify their real estate portfolios, especially when the real estate market is performing well.
  • Security: In general, real estate is a safe investment. The property serves as the security for a house flipping loan. If the borrower defaults on the loan, the lender can take possession of the property and work with a different house flipper to finish the project and get the house back to the market.
  • Short Loan Terms: In a nutshell, most house flipping projects are complete within 12 – 18 months, allowing lenders to see quick ROI. 

Hard money house flipping loans become the vehicle for success when a forward-thinking lender and a skilled flipper collaborate.

The Drawbacks of a House Flipping Loan

A house flipping loan may go against a borrower (or a lender) if the house flip takes longer than expected. Because hard money house flipping loans are designed for the short-term, they generally have a higher interest rate. However, if renovations take longer than intended or a project remains on the market for an extended time, those increased interest rates might burden the borrower.


benefits home flip loan hard money


6 Different Types of Financing for House Flipping

Borrowers can utilize one of six different types of financing to flip a house:

  1. Hard Money House Flipping Loans from private lending investment groups.
  2. Private lenders that make hard money loans using their own money.
  3. Crowdfunding provides a type of hard money loan but with less flexible terms. 
  4. Home Equity Loans or Home Equity Lines of Credit from traditional lending institutions provide some loan options; however, they are not as flexible.
  5. Cash-out Refinance, where you essentially remortgage your own house from a traditional banking institution, can provide funds. 
  6. Acquisition Line of Credit, which is similar to a Home Equity Line of Credit, may be an option for house flippers; however, they require greater personal security. 

How to Get a House Flipping Loan

The flexibility of a hard money house flipping loan is an excellent option for borrowers. Still, it doesn’t imply that lenders are lending money to everyone that wants to try their hand at flipping properties. It also does not imply that all house flipping lenders are the same.

When you are ready to start flipping houses, you will need to find a private or hard money lender willing to invest in your project. 

Locate a Lender

A knowledgeable private or hard money lender in your region will be a valuable business partner. In addition, someone familiar with your market area will be aware of the real estate trends and will be able to recommend contractors if necessary.

Locate a Dependable Lender

Look for a lender who has a portfolio. Inquire with other house flippers in your region about who they recommend. You’ll want a financial partner with a proven track record demonstrating their success in finding and financing successful house flips.

Inquire on Construction Draws

Construction draws are incremental withdrawals of funds from the authorized loan amount to support property construction activities. Some lenders may levy a “construction holdback,” meaning the draw is not released until the job is done or is in progress. It’s important to know, before choosing a lender, whether they impose a construction holdback and how quickly construction funds are available.


construction draw


Calculate the cost

Before applying for a loan, knowing how much money you will need is crucial. House flipping entails more than just the buying and remodeling fees. There are additional carrying and marketing costs to consider, and you’ll want to leave some room in your budget for those expenses. Work out the five expense categories (Cost of house, cost of renovations and upgrades, carrying costs, selling costs, project cushion) to demonstrate to your lender that you’ve done your research.

Plan the Project

Make a comprehensive timeline for completing your remodeling. List all renovations, including appliance upgrades, that need to be completed and when each stage of the project will start and end. Include a cost estimation for each stage of the project. 

Understand What Lenders Are Looking For

Hard money loans are different from one lender to the next, so be sure you understand the requirements of your selected lender. For example, what type of insurance do you need? Is it necessary for you to form an LLC? etc.


real estate investor team


How to Begin With House Flipping Loans

The term “house flipping or fix and flip loan” can apply to various real estate financing and loan options. Still, among experienced house flippers, it is nearly synonymous with hard money loans. Unlike typical finance options from traditional banks, hard money house flipping loans were designed for the real estate industry and specifically for house flipping.

If you’re considering flipping your first house, you need to first learn about the market and how to estimate expenses. Then, when you’re ready to start, look for a local hard money lender with a strong portfolio. If you’re searching for Financing for your next flip and have never worked with a hard money lender before, you might be surprised at how fast and smooth the process can be.


how to flip houses


Simplify Your Loan Process

Whether you are a first time flipper or an experienced investor, getting house flipping loans are essential to your success. At Liquid Logics, we understand the importance of speed and efficiency when it comes to real estate investing. That’s why our loan origination software was designed with the investor in mind. Contact Liquid Logics today to learn more about how we can help you get started in flipping houses!