15 Tips to Secure the Best Rates on Fix and Flip Loans

Flipping houses is one of the most lucrative options available to make money as of now. The biggest challenge that most people face when they get into house flipping is securing finances. It is true that you can find numerous fix and flip loan options available. However, getting yourself approved for such loans can be quite tricky. Even if you get approved for a loan, you should try to go for the lowest possible rates. Otherwise, making money out of your investment will be a real challenge.

As a real estate investor, it’s important to shop around and negotiate to find the best loan terms possible. Locking in lower interest rates can improve your profit margin on your flip. With the right lender relationship and loan program, you can decrease your borrowing costs substantially.

Follow these 10 tips to secure the best interest rates possible on rehab loans and hard money loans to fund your fix and flip projects.

1. Check Your Credit Score

Having a credit score of at least 650 is essential for the best flip financing rates. While it is possible to be approved with a lower score, you will pay a premium price with extra fees and high interest rates.

Before approaching lenders, pull your credit reports and check your credit score. If your score needs improvement, spend time over the next few months responsibly managing credit and paying down balances to boost your rating. The extra effort can save you thousands of dollars in interest payments.

2. Raise Your Down Payment

When getting loans for flipping houses, some tend to ask for 100%. This is a red flag for the lenders, and they will not provide you with the best rates.

The more skin you have in the game, the better flip loan terms you can expect to receive from lenders. Most fix and flip loans require a 20-30% down payment. But putting up more of your own cash when possible shows lenders you are serious and lowers their risk. This is one of the fix and flip loan requirements for most lenders as well.

Hard money lenders in particular may reduce rates substantially when you put 40-50% down on a project. Having more cash invested means you as the borrower has greater motivation to complete the remodel so that the entire loan can be paid back promptly.

3. Use a Portfolio Lender Instead of a Bank

Banks are often bureaucratic and slow to fund loans. Since flipping emphasizes speed, small private lenders or portfolio lenders are a better option. These non-bank lenders use their own capital to fund loans and can close loans in a matter of days, not weeks or months.

Portfolio lenders like hedge funds and mortgage brokers offer more flexibility as well in designing loan terms that meet a flipper’s unique needs. You simply won’t find fast funding or custom loan structures at large banks.

4. Seek Out Competition Between Local Lenders

Don’t just get a loan quote from one hard money lender. Talk to several so you can compare offers and create competition. Having multiple term sheets on the table gives you greater negotiation power to get lower rates and costs.

Reach out to lenders advertising fix and flip loans in your local area. Develop relationships with 4-5 go-to lenders you can contact for deals. The more options you have, the better chance of securing preferential pricing. This is why you should be ready to spend some time before getting the right option out of house flipping loans available.

5. Ask About Discounts for Repeat Borrowers

Once you complete a successful flip with a lender, ask about discounts, reduced fees, or better advance rates for your next project. Since the lender already knows you can successfully execute, build rapport by discussing future deals.

Many private lenders offer incentives, higher leverage, and improved terms for repeat borrowers in good standing. Loyalty and repeat business goes a long way!

6. Present a Detailed Business Plan with Market Analysis

Serious lenders want to see a viable business plan before funding flip projects. Provide details on your experience, budget, draw schedule, comparables, and exit strategy. Prove you have thoroughly evaluated the profit potential and risks involved. If you don’t have the expertise to prepare these documents on your own, you should seek expert help. They will also guide you on how to get a loan to flip a house at the best possible rate.

Show how fast the property will sell by including recent comps with days on market. Demonstrate there is healthy demand from buyers and realistic after repair value to support loan repayment. Such market analysis and financial details reassure lenders.

7. Use a Commercial Property for Collateral

Instead of the flip property itself, some lenders allow using other currently owned properties as collateral at better rates. This avoids higher pricing that accompanies asset-based lending secured solely by the construction loan property.

Offer commercial buildings you own free and clear as collateral with better credit tenants and clean rent rolls. The lower risk commercial property qualifies you for lower cost lending that can be used to fund your flips. Most people who go for fix and flip loan Minnesota tend to follow this strategy.

8. Talk to Both Local and National Lenders

While local lenders know their markets best, national lenders like banks and mortgage companies can also offer competitive rates due to their access to the secondary mortgage market. Cast a wide net and connect with both local fix and flip lenders as well as larger regional and national asset based lenders.

The more options you have between both local players and national lenders, the better chance of identifying the lowest cost of capital for your next deal.

9. Ask About “No Doc” or “Low Doc” Loans

Fix and flip construction loans usually require full personal financial statements and tax return documentation. However, some lenders offer “no doc” and “low doc” loan programs for experienced investors with strong credit.

Low documentation loans skip certain financial disclosures in exchange for higher rates or a larger required down payment. If you lack some paperwork but have cash to put down, explore how no doc loans can quickly fund your next project.

10. Build Your Fix and Flip Track Record

The strongest loan terms go to seasoned fix and flippers with an established rehabbing track record. If new to flipping, you may need to stomach higher rates initially. But flaunt your success on early projects to eventually earn lower cost access to capital.

Portfolio lenders reward reliability, strong communication, proven expertise, and relationships developed over repeat loans. Keep wooing them to win better financing pricing over time.

11. Explore Alternative Loan Sources

Think outside the box when it comes to funding. Tap into alternative capital sources like private money partners who fund flips for set returns. Or use a home equity line of credit from your existing property portfolio to finance projects. Crowdfunding and peer-to-peer lending platforms also connect investors directly, reducing loan costs.

As you explore alternative options, it is important to showcase your expertise as well. It will help you with reducing the overall risk you create to the lender. This is one of the biggest challenges that fix and flip loans for beginners have to face. In such situations, you may think about partnering with an experienced house flipper.

12. Offer Quick Repayment Terms

Lenders feel more confident lending to rapid flips that will repay loans in 6 months or less. Push to purchase discounted properties needing cosmetic fixes only—not major overhauls. Plus, commit to realistic short timelines for completion. The quicker you resell and repay loans, the more attractive the risk appears.

13. Pay Points for a Lower Rate

Just like refinancing a primary home, lenders may reduce rates further if you pay “points” upfront to buy down the interest rate. Crunch numbers to see if paying 1-2 points to decrease rates makes sense over loan duration for higher projected profits.

14. Set Up Automated Payments

Agreeing to auto-debit loan payments from your bank account shows lenders reliable future payment. This removes human error or missed checks that lender’s worry about. Offer this arrangement for better perceived reliability and possibly improved rates.

15. Offer Your House as Collateral

While risky, some flippers use their own homes as security for better terms from lenders. This adds motivation to timely repay loans and conveys confidence in your ability to sell for a profit. Just be cautious pledging your residence and crunch numbers carefully beforehand!

Final Words

Securing affordable financing is essential to profitable fixes and flips. With research, relationship building, and leveraging competition, investors can access capital to fund rehabs even with mixed credit profiles or unique situations.

Follow these tips like crafting a thorough business plan, using commercial collateral, and presenting large down payments to reduce rates. Every percentage point saved boosts bottom line returns tremendously over multiple flip projects.

Over time by demonstrating consistent execution, investors enjoy improved loan terms with lower fees and more flexibility from their network of lenders. Funding flips does take effort, but with the right financing approach returns can be well worth the hard work.