Fix & Flip Loan Example

Merchants Mortgage Fix and Flip Loans are designed to facilitate the acquisition and improvement of a residential investment property. Here are a few noteworthy details about our loans:

  • We have the ability to underwrite and close this type of loan within 5-7 days.
  • Merchants will lend up to 90% of the purchase price of the property plus 90% of the repair budget (90% of Cost, 90% Loan To Cost (LTC)). (Subject to borrower and property qualifications.)
  • All loans are subject to a maximum 75% Loan to Value (75% of Value, 75% LTV) based on the estimated As Repaired Value. For pricing and terms, see below.

Depending on the specific loan request, the borrower, and the property qualifications, loans may be offered at reduced LTC/LTV ratios. Each loan request is subject to underwriting, approval and the following potential factors:

  • The strength of the property.
  • Borrower’s credit, liquidity, net worth, income, and experience.

Here is a sample loan breakdown for reference. Please note, the down payment requirement is subject to underwriting and may be lower or higher than in the example shown below.

Loan Example:

Loan terms: Loan 90% of Purchase Price Plus 90% of Fix-up.

 Cost Loan (90%) Equity (10%)
Purchase Price $250,000 $225,000 $25,000
Improvement Budget $50,000 $45,00 $5,000
Total $300,000 $270,00 $30,000
 Loan Summary
Loan Amount (90%) $270,000
Borrower Down Payment (10%) $30,000*
Minimum Appraised Value (75% Loan to Value) $360,000

* Down payment from Borrower may come from a variety of sources (subject to Underwriting and Qualification) such as Cross-Collateralization; Down Payment Reserve Account: Home Equity Lines; Partner Funds; Gifted Funds. See our Benefits and Terms links.

Cross Collateralization:

Cross-Collateralization: If the borrower already owns another real estate property, such as a primary residence, second home, or investment property, in an area that MMTC lends, there may be enough equity (at a proper loan-to-value percentage) in that property to use it as a the down payment for the new fix-and-flip property being purchased.

This means that the borrower may not need to put any cash into the transaction. The equity from the other property can serve as the down payment.

Many of our clients have successfully used cross-collateralization. Ask your loan specialist for details.

Fix & Flip Down Payment Reserves:

MMTC offers an innovative way to assist fix-and-hold real estate investors with their desire to build rental portfolios. The best part is, this could mean obtaining a property with little, to no cash out-of-pocket after the refinance is obtained. Here’s what you need to know:

Typically, MMTC will require 10 to 20 percent of the purchase price plus repair amount at the time of the property purchase and loan closing; however, if desired by the borrower, MMTC will hold the down payment in a “Down Payment Reserve Account” and will make the loan for 100% of the costs of the project. As soon as the loan is paid off, the Down Payment Reserve Account is refunded to the borrower.

  • What’s the benefit? When a borrower goes to refinance the loan, it will be possible to refinance for an amount equal to 100% of the costs without seeking a “cash out” refinance to recover their equity.
  • Additional Need to Know Items:
    • The down payment reserve account is fully documented for the borrower via a security agreement and is shown as a line item on the HUD closing settlement statement.
    • In the above example, the loan amount would be for $300,000 and the “Down Payment Reserve Account” would be $30,000 which would be held by MMTC until the loan is paid in full, and then refunded to the borrower. It is highly recommended that someone wanting to use a Down Payment Reserve get preapproved before they have a contract on a property. This should be done with not only MMTC but with the conventional takeout lender as well. (MMTC can provide recommendations to take-out lenders if needed.)

Also see our Fix and Flip Terms, Benefits, and Application Checklist links.

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