If you have a rich uncle, won the lottery, or were the start of a TV show, financing for flipping houses in Philadelphia might be easier! But for the rest of us, we have to turn to more traditional financing for flipping houses in Philadelphia.
Your Own Money And Credit
You’re all set if you have enough capital on hand to fund the acquisition of your next house and its renovation. Many investors though end up drawing from their Home Equity Line of Credit (HELOC) in order to fund the renovations which can work well so long as the house can be quickly sold or refinanced upon completion. The HELOC is good as there are few qualifying procedures for each project, and the interest is relatively low compared to other financing options; however, let’s be clear the risk is to your family’s home.
Newer investors without much capital may think going to “the bank” is their only alternative. But as compared to getting mortgage for your home, you will run into many snags trying to get a mortgage for a house flipping project. The first snag is that conventional mortgages require a 20% down payment, but because this is an investment property some banks will require 25 to 30%. The second snag: Banks are not keen on financing distressed homes. They just don’t see the business opportunity that you see! Third snag: The loan will be based on your credit score not on the merits of the project or the value of the subject property. Fourth, it can take way too long to qualify for a mortgage. Even if you’re approved for a mortgage, it’s unlikely the bank will approve an additional amount in that mortgage to cover your renovation costs. One last snag: mortgages are generally for longer terms not the three to six months you probably had in mind.
Hard Money Lenders
The best financing for flipping houses in Philadelphia will come from a hard money lender because unlike the banks, they will have a loan product designed for real estate investors who are flipping houses. They will loan you money based a percentage of the after repair value of the subject property for a shorter term (like 3 to 36 months). That’s right, the property and the project are more relevant that your personal credit score. Interest rates could be slightly higher but you’ll get the money more quickly and you’ll work with someone who is familiar with real estate investing and can see the opportunity in that distressed property, just like you. A good hard money lender is looking for repeat business so they’ll love to work with investors who don’t just want to flip one house but 2… 5… 10… or many more over their lifetime.
What you’re doing by getting your financing for flipping houses Philadelphia from a hard money lender is essentially developing a relationship with a like-minded ally that can help you grow your real estate investment business more quickly. Better, quicker, more stable financing for your flips.