Home flipping has remained a tried-and-true method for generating returns through real estate, even in less than stellar economic conditions. But for real estate investors interested in home flipping, it can be somewhat difficult to find good, reliable financing for your projects. With traditional financing providers, you may have trouble being approved on a property that’s in need of repairs, and they will have a lengthy approval process that can take months. For that reason, and many more, you would likely be better off going with a bridge loan for your investment. Continue reading to learn more about bridge loans, and why they are often the perfect solution for financing a home flip.
They are short-term
Bridge loans are a form of short-term financing designed to be used in scenarios where you will be buying and selling property quickly. While traditional real estate loans are taken out for 15 and 30-year timeframes, bridge loans are typically taken out for periods of 6-24 months. That makes them ideal for home flipping, but they also work great for things like wholesaling/contract flipping.
You’re more likely to qualify for one
When it comes to financing a home flip, you might run into roadblocks working with a traditional lender like a bank. They may not be willing to finance a property that’s in rough shape, since they will view the investment as too risky. They’ll also want to take a deep look at your finances and credit score, and if either are in less than ideal shape you may be denied for a loan. That is not the case with a private money bridge loan, however. Bridge lenders will be more concerned in the property itself and whether it makes a good investment than your personal finances or credit.
Lenders are willing to work with you
As we mentioned, bridge lenders generally have less strict guidelines for underwriting loans. They are also more likely to be flexible with their loan types and repayment schedules. Many lenders offer interest-only options for example, where you’ll only pay the loan’s interest every month and then repay the principal amount at the end of the loan term. For flipping, lenders will often base the loan amount on the ARV (after-repair value) of a property rather than its as-is value, providing you with the funds needed to perform renovations. On top of that, most lenders will be willing to work with you for a loan extension if that ever becomes necessary.
They close quickly
Another thing that makes bridge loans great is how quickly they can be closed on with the funds delivered. Bridge loans are known for their quick turnaround time, especially when compared to a traditional bank loan. If you work closely with your lender they can close in as little as two weeks. This benefit gives you the edge in competitive markets where good deals receive many offers and sell quickly. Being able to put a cash offer on a property could be the edge you need to win out over other buyers.
How you can qualify for a bridge loan
If you are interested in taking out a bridge loan for a home flip, there are a few things you should have in order first. Bridge loans are usually backed by property, such as another home, which is what allows lenders to be more flexible with their terms and qualifications. Besides this, you should ensure that you have a plan for the property that includes the profitability and costs associated with the investment. Another thing lenders will be interested in is your debt-to-income ratio, since they want to know that you’ll be able to reliable repay the loan. Finally, lenders may ask for a credit score pull, but it will likely be used to determine your final interest rate rather than barring you from qualifying for the loan.
Do you have a real estate project you would like to obtain financing for? RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are looking to acquire a Bridge Loan on a property, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.