Tuesday, January 11, 2022

How To Renovate Your Home Using Fix And Flip Loans

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Renovating a property is a massive financial investment, even when you expect to resell the property. If you require any form of financial assistance, you probably know just how complicated the whole loan process can be, from working out your credit score to finding the right lender. An option available is getting a hard money loan. Unlike traditional mortgages, hard money loans come with a less stringent approval process. The details below will show you how you can renovate your property using Fix and Flip Loans.  

So what exactly is a hard money loan? It is a specific asset-based loan financing used primarily for real-estate transactions. While companies or private investors typically use it, individuals can also take advantage of a hard money loan, especially when it offers several advantages. One main advantage here is that, unlike other traditional loan types, a hard money loan does not come with complex, stringent processes during its approval process. Beyond the comparatively quicker approval rates, it also comes with fewer requirements and is ideal for short-term purposes.

Examples of hard money loan borrowers

  • Property flippers: Property flippers take advantage of hard loans to fund various property projects while using the projects as a form of collateral.

  • Wholesale funding: because of how easy it is to access hard money funding, many people take care of wholesale flips. 

  • Renting and renovation: Others can use hard loans to secure quick funding for various renovation projects. 

When it makes sense to use a hard money loan to renovate your house

Although hard money loans come with shorter terms, they usually have higher interest rates than traditional loans. While many people may shy away from using hard money loans for home renovations, it may offer an excellent financing solution in many situations. These include the following:

  • If your renovations make up for the cost: At first consideration, a hard money loan may sound 'expensive'; however, if you manage to calculate the total cost to match your expenses. For instance, your hard money loan attracts about $5000 in interest over 5 months, and you expect to sell your home within three months; you can deduct the $5000 from your expected sales. If you'll still have some profits left after the deduction, then a hard loan makes sense. 

  • If you don't qualify for a mortgage, your chances of qualifying for a mortgage are pretty slim if you have low credit scores and a high debt ratio. Many banks and traditional lenders already have very strict requirements for home renovations, especially concerning investment properties. Because hard money loans focus on the property instead of the borrower, it is easier to get the approval you need to renovate your home, as the latter will serve as the collateral. 

  • Fix and flip: If you're considering purchasing a home at a lower price to fix and sell, then a traditional loan might not make sense as it'll take too long to approve. Hard money loans will give you quick access to the funds you need to finish the purchase and renovation process within months.

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