subject: Finance Options For A Home Flip [print this page] Although the current state of the economy has made it difficult to obtain financing for home flipping, it's not impossible. You can still make money flipping homes. With a little creativity and a little bit of elbow grease, you can do it in style.
Your first consideration must be your credit score. There are available online programs that provide your credit score, but the best one to use is the Fair Isaac Corporation, better known as FICO. Your FICO credit score is the predominant score the majority of lenders use to determine your creditworthiness.
Is your credit score 680 or above? A score of 720 or higher is preferred. Now, how much do you have for a down payment on a home flip? For a conventional loan, you will probably need 20 percent down. If you do not currently own a home, FHA is a great place to start for a home loan. You pay little, if anything, down and your interest rate will be quite competitive. There are typically no penalties for selling at any time after obtaining you loan. Some lenders do charge for selling early. You may want to pay attention to mortgage rate trends as you are looking so you can take into account current mortgage rates as you are running numbers on your flip.
If you already own a home, then you'll need some other means for financing. You still have options. Below are some options you may want to consider:
*Second Mortgage - You may want to consider obtaining a second mortgage on your home to fund either the down payment for your flip or pay for it, altogether, depending on the purchase price of the home. Make sure you check the market conditions for the home you want to purchase. The neighborhood and the momentum at which homes are selling in that specific neighborhood are critical factors in whether you should take the risk and take out a second mortgage. In addition, three bedroom, two bath homes, sell much quicker and for substantially more than a one or two bedroom, one bath home.
*Hard Money Loan - A hard money loan may be an option if you have little invested and are confident that the home will sell quickly after being repaired and put back on the market. It used to be that you didn't have to meet many requirements for a hard money loan. Nowadays, however, savvy hard money lenders want to know that you are worth the risk. Most likely, financials will have to be provided and you will have to meet certain criteria.
* Adjusted Rate Mortgage (ARM) - An ARM is still a viable option, even though it's received a bad rap lately due to all the foreclosures, especially in Arizona and California. A multitude of ARMs have recently come due, and many homeowners are finding it difficult, if not impossible, to obtain new conventional loans due to the real estate market bust. Literally, whole neighborhoods have gone into foreclosure due to ARMs coming due. Homes just aren't worth what they were even two years ago.
If you do your homework on the home, find a workable loan solution and purchase it for a lot less than it is worth, you should be able to make a profit when it's sold.
