100% Fix and Flip Loans Financing Solutions
6 minute read
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June 5, 2023

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One of the main obstacles for home flippers is securing the necessary financing to cover the project. Whether you’re new to investing or having a few deals under your belt, the important question is—can you finance 100% fix and flip loans?

Connect with a fix and flip lender.

Are straight-up 100% fix and flip loans possible?

First of all, what is a 100% ($0 down) home flip loan? That would be when you can secure financing for all three main home flipping costs:

  1. Home acquisition
  2. Rehab
  3. Closing costs/lender fees

It’s rare to find a lender willing to finance 100% of a house flip. Most lenders cap their loan amounts based on total project cost or after-repair value (ARV), whichever is lower. The flipper is typically responsible for closing costs (5%+ of the home price).

Let’s consider an ideal scenario:

Home cost$200,000
Rehab$50,000
Closing costs/lender fees$30,000
Total costs$280,000
After-improved value (ARV)$400,000
75% ARV$337,500

In theory, a lender might approve 75% ARV, which is $337,500 in this case. Since this number is more than the $250,000 total project cost, you might think a lender could easily finance it at 100%.

However, there are other limiting factors, such as:

  • Most lenders will make you pay closing costs out-of-pocket
  • Most lenders cap the loan to 85-90% of the actual cost
  • Many lenders require a down payment on the home acquisition regardless of ARV

Let’s take another look at the above scenario:

Total cost of project$250,000
90% of total cost$225,000
75% ARV$337,500
Lower of the 2 numbers$225,000

So with a generous lender, you might get a $225,000 loan. This still leaves you with out-of-pocket expenses of:

  • $25,000 not covered by the loan
  • $30,000 closing costs/lender fees

Even with this scenario, you still need to cover the $55,000 gap. Luckily, there are a myriad of ways to bridge the funding gap and secure the financing needed to get the project off the ground successfully.

Get matched with the perfect lender for your flip.

How to bridge the funding gap

Each of these strategies has been successfully employed by house flippers across the country.

You may even be able to use one of these methods alone and skip the fix and flip loan altogether!

But, like any financial product, there are risks involved.

Let’s review all the benefits and risks of these financing options.

Home Equity Loan/Line of Credit (HEL/HELOC)

Using a home equity loan or line of credit (HELOC) on your primary residence allows you to tap into your home’s equity to finance an entire home flip.

This strategy offers benefits such as low-interest rates, tax-deductible interest, and a reusable credit line. You can even get a HELOC for up to 100% of your home’s value with some lenders, sometimes at low or no closing costs.

However, it does put your home at risk and requires sufficient home equity to make it a viable option.

Check your HELOC options.

Seller financing

Negotiating seller financing involves requesting the seller to finance part or all of the acquisition cost. This strategy reduces your initial cash outlay and avoids traditional lender requirements, such as credit checks and income verification.

However, your chances of finding a willing seller are slim. The homeowner is selling the home at a discount – and in bad shape – because they don’t have the resources to maintain the home. But, it’s still worth asking.

The downside is that it requires a willing seller and interest rates may be higher compared to conventional loans.

Credit card

If you have financing to acquire the home – like a hard money loan – you can use a zero-interest credit card for rehab costs. Additionally, you may benefit from rewards or cash-back programs offered by credit card companies.

There are mitigating factors that should be considered with this approach, including high-interest rates after the introductory period, limited credit availability, and potential negative impacts on your credit score.

401k loan

Some employers let you borrow from your 401k. You could use these funds to finance the flip, potentially without penalties. 401k loans often come with favorable interest rates and don’t require a credit check.

However, this strategy reduces your retirement savings and limits the amount you can borrow, which might not be sufficient to successfully bridge the gap for a full house flip.

Self-directed real estate IRA

Using a self-directed IRA to invest in real estate, including house flips, provides tax-free or tax-deferred profits, diversifies your investment portfolio, and contributes to long-term wealth building.

The downside? This method comes with limited access to funds, strict IRS regulations, and potential tax penalties if not managed correctly.

Cash-out refinance on another property

Have lots of equity in another property? You can do a cash-out refinance on it to access its equity for the house flip can provide large amounts of cash and potentially tax-deductible interest payments.

However, this strategy increases your mortgage debt and requires sufficient equity in the property to be effective.

See how much you can get with a cash-out refinance.

Investing partner for debt or equity

Partnering with an investor to finance the entire project or the portion not covered by a lender can help share risk, provide access to capital, and bring additional expertise to the project.

You can go a couple ways with a partner. They can simply provide the loan funds and get paid back with interest when you sell the home. Or, they can invest and receive a portion of the sale proceeds.

If you’re short on an area of renovation expertise—in plumping or electrical knowledge—supporting that weak spot with a talented partner willing to invest financially will likely be looked upon favorably by a lender.

Keep in mind that partnering also means splitting profits, dealing with potential disagreements, and relinquishing some control over decisions.

Formal partnership

Forming an LLC with a partner for multiple flips allows you to divide responsibilities and protect your personal assets from potential liabilities.

This arrangement offers legal protection, shared financial burden, and diversified skills. But, like the previous option, it also involves a more complex legal structure, shared profits, and potential conflicts between partners.

Crowdfunding

Using crowdfunding platforms to raise capital for your house flip can give you access to a large pool of investors, minimal upfront costs, and potential publicity for your project.

However, this approach has its drawbacks, such as platform fees, limited funding success, and public accountability for the project’s progress and outcome.

Flipping houses 101—the bottom line

In conclusion, achieving 100% financing for a house flip demands a combination of creativity, determination, and a clear, straightforward approach.

By thoroughly investigating various financing options and effectively utilizing available resources, you can avoid financial obstacles and make your house-flipping endeavors successful.

Submit your fix and flip scenario.

Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.

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