There is a big difference between traditional mortgage loans for houses that you plan to live in and bridge loans for house that you plan to rehab. Traditional mortgage underwriters usually do not lend money for non-owner-occupied fix and flip real estate projects while bridge loan underwriters typically do not lend money for owner-occupied homes. So if you decide to fix and flip a property then rent or sell it in the near future, you will need to find a suitable lender that knows how to underwrite that type of loan.
Lenders who underwrite fix and flip real estate loans are most often companies that use real estate as debt collateral with the intent of getting repaid within a short time period, typically 6 to 12 months. Generally, hard money loans are used for flipping houses, but they can also be used as bridge loans before longer-term financing can be obtained.
Loans for flipping houses are designed to cover the entire cost of a project, from the house itself to the cost of renovations. Maximum allowable loan amounts depend on the individual lender but are generally calculated in two ways:
- Loan-to-Cost (LTC): The loan amount as a percentage of the project's anticipated cost
- Loan-to-Value (LTV): The loan amount as a percentage of the property's projected value after repairs and renovations are completed
In the current lending environment, as of September 2020, private real estate lenders are willing to lend up to 70% of loan-to-value (LTV). We expect this number to increase to the normal rates of 80 to 90% LTV once the economy fully recovers from the COVID downturn, but this will vary lender to lender.
So what documentation will you need to get your fix & flip loan?
- Bank statements for yourself and/or business
- A copy of your driver's license or government-issued ID.
- An LLC operating agreement
- An executed sales contract for the property
- Photos of the property
- A list of any other properties that you or your business owns
- Deed of Trust – Document that, when recorded, places a lien in the amount of the loan against the property that is collateral for the loan
- Documentation of other real estate rehab projects that you've completed
- 2-years of your personal tax returns
- Copies of your W2’s
- 1-month of pay stubs
- Bank Statements
- Repair estimates from a licensed contractor
Some lenders don't require all of this documentation. Joist has underwritten some loans with less than half of those listed documents. But as a precaution, we suggest to borrowers to be prepared prior to applying. More information never hurts.
If you want the best chance of obtaining a loan for a fix and flip real estate project, be organized and come prepared. The documents that you will need for your hard money loan vary based on your situation. Gathering all of the necessary documents may take some time but is valuable nonetheless to the success of your project. Loan professionals at Joist can also help you prepare and understand the information that you need to obtain financing for your next project. If you are ready for a loan or would like some guidance on the process, feel free to email one of our customer experience processionals or apply for a loan directly on our website.