Hard Money Loans vs. Conventional Loans
There’s no question that home flipping is hot – sexy hot. U.S. single-family home and condo sales that were completed flips reached a six-year high by Q2 of 2016. 185 days was the longest average time to flip, the lowest timeframe in ten years. And the average gross profit for a flip hit a sixteen year high of $62,000, all according to the newsroom and media center on RealtyTrac.com. To keep us all hooked, (or possibly just feed our addiction), HGTV and NetFlix crank out show after show about finding the right home to fix, flip and profit from. It’s impossible to turn your back on the trend; and there’s so much to gain if you jump in.
But how do you know where and how to jump? And which type of lender should you approach: hard money or conventional? It helps to do some comparing before you venture forth. Here are the basics of hard money loans vs. conventional…
Hard Money Loans
- Require real estate assets to secure
- Interest rates of 12-16%
- Fees, fees, fees – often beginning with an origination fee of around 4%
- Not insured or guaranteed by the federal government, but may be “conforming” to the guidelines put in place by Freddie Mac and Fannie Mae, including loan limitations
- Excellent credit needed to qualify for the best interest rates
- Sizable out-of-pocket closing costs, including: lender fees, third party fees, down payments, mortgage insurance and points
Either of these standard options can be great in the ideal circumstance. But there are other approaches to consider. A Fix & Flip Loan, such as Merchants Mortgage’s unique, buyer-friendly model, meets the borrower in the middle.
Merchants Mortgage’s Fix & Flip Loans
- Quick approvals (typically 24-48 hours), and closings as fast as 5-7 days.
- Broader net for qualifiers. These loans tend to be more lenient/flexible, encompassing traditionally overlooked borrowers.
- Flexible with down payment sources, including cross-collateralization or through specialized options, such as down payment reserve
- No prepayment fees; fees in general are cheaper, more competitive.
- Loans extend beyond the property purchase price to include repairs.
On a $350,000 loan, the added value from the Merchants Mortgage Fix & Flip loan compared to a hard money lender’s option averages about $11,500 to $12,500 in savings.
Navigating the field of mortgage lending can be tricky, so it’s worth it to do your research. You want to go in knowing what you plan to spend, how you are going to execute it, and have a solid sense of your timeframe. The fix & flip process can be hugely successful when your vision is backed up by a plan that is well-conceived, defined and strategized.