Getting a loan, particularly when you’re buying a property to fix and flip it and earn a profit, might be a little intimidating. But if you understand the process behind getting this type of loan, and you generally know what to expect, that fear will quickly dissipate.
Below, we break down the fix and flip loan process so you can approach your next application with more confidence.
It All Starts with Receiving Your Pre-Approval
Compared to buying a house for yourself, working with a seasoned, “hard money” or “private money” fix-and-flip lender is a breeze. There are generally fewer requirements to be met. However, the lender will still want to make an informed loan decision, so it’s best to get preapproved before you start putting in contracts.
For a fix and flip loan, the first step is to find a lender with whom you’d like to work. They’ll be there to help you through the process from start to finish. And it all begins with getting pre-approved by filling out a 1003 application. Many lenders allow you to complete this form online.
This will require that you provide information on the borrower, on the down payment, and on the assets and liabilities of the applicant. Also, other important pieces of info will need to be provided in order to help the lender determine how much you can actually borrow.
Pro tip: Take the time to get your pre-approval before you start shopping. Doing so will not only help you look for properties that are truly within budget, but will also make the process of getting your loan faster once you find a place you want to purchase.
Provide Documents That Prove Your Worthiness
When applying for a fix and flip loan, various documents will also be requested. These can further prove that you’re worthy of getting the loan that you’re applying for.
Documents that you may need to provide might include:
- Recent pay stubs if you are salaried.
- The last two years’ worth of tax returns or W-2s
- Bank statements, along with documentation of other assets, such as mutual funds, bonds, stocks, and retirement accounts
- Proof of any prior experience in fixing and flipping or renting properties
Go Under Contract, Determine Your Budget
Before you apply for a fix and flip loan, it might be helpful to have a business plan prepared for your next real estate project. This plan includes estimates for the costs of renovations, particularly if you already have a specific property in mind that you’d like to work on.
Once you’ve put an offer on a property that you want to renovate, and it has gone under contract, it’s time to fill out a budget itemization and questionnaire. If you have a business plan in place already, you might be able to use the information in your plan to fill this out efficiently.
With this questionnaire, the lender will know how much money you’ll need to complete your project before you’re ready to resell. So, basically, this is your chance to have your budget for your fix-and-flip approved. Plus, this information will also be factored in when the appraiser determines the “after repair value” of the property.
As you fill out the budget questionnaire, you’ll cover things like:
- Expenses you’ll incur to renovate the exterior of the property, as well as the yard
- Expenses that you’ll have to cover for interior upgrades, including flooring, bathrooms, and the kitchen
- Expenses for systems throughout the property, such as heating, cooling, and plumbing
- Soft costs, such as building permits, mold abatement, and engineering plans
- Labor costs
- Dump and cleanup costs
Working with the Right Lender Can Make a World of Difference
When it comes to fix and flip loans, working with the right lender can make the loan process easier and less stressful. When you’re ready to move forward with your next real estate project, we can give you access to the loan options that are available to you. And with reasonable rates and fast closings, our expert loan officers will make sure you can get to work as soon as possible.Contact us today to learn more!