Frequently Asked Questions
1. Why should I get a fix and flip loan instead of a 30 year, fixed-rate loan?
We can’t count the number of times that we have received a panicked call from a prospective investor because they were trying to use a conventional loan to purchase a fix-and-flip property, only to find out in the end that the conventional lender could not close the deal after all. Conventional lenders are generally not specialists for fix-and-flip investors. Similarly, you would not use a fix-and-flip loan for a home that you intend to buy and occupy that requires no repairs. Specific roadblocks to using conventional financing for rehab properties include:
- To obtain a conventional mortgage, the property you are purchasing typically has to be in “move-in”, “habitable” condition. This is because conventional loans are sold in the secondary market, so the properties and borrowers must meet the standard guidelines of these agencies. As you know or may be learning, many fix-and-flip properties that are great deals are not in move-in condition at the time the investor is purchasing them. In many cases, the properties have extensive damage and are in need of immediate repairs. A conventional lender’s appraiser would have to mark the property “not habitable” if it is missing essentials like carpet, furnace, toilets, etc., thereby rendering the property unacceptable for most conventional lenders. On the other hand, we at MMTC understand the nature of these deals and we work with properties that need repairs every single day, because that is the type of lending we specialize in.
- Conventional lenders typically do not lend funds towards the repair of the property. MMTC does lend toward the improvements, meaning less funds out of your own pocket.
- Conventional lenders usually have more requirements and take longer to close. This puts an investor at a disadvantage because a shorter closing time is more attractive to the distressed seller of the property. MMTC can close loans in 5 days if needed. We have many repeat clients due to this reason.
- In today’s tightened mortgage lending environment, most sources of conventional loans will not allow long-term conventional mortgages for fix-and-flip investment properties. At MMTC, we like to understand exactly what the plans are for the property and work to accommodate and facilitate those goals for the investor in an expedient and friendly manner.
2. What are the down payment requirements?
Fix and Flip Loans – Down payment requirements vary depending on the economy, the property, and the borrowers’ qualifications. Also, because requirements and programs may fluctuate over time, you will want to check with us to confirm the latest information. We offer down payment requirements as low as 10% to qualified borrowers and 100% financing is possible through cross-collateralization with other qualifying properties.
Subject to underwriting and qualifying, we may consider a variety of sources to be used for the down payment such as home equity lines of credit, funds from partners, cross-collateralization whereby with borrower’s consent we may be able to take a lien on another property already owned to cover the down payment for the fix-and-flip property being purchased, and of course, funds on hand such as checking, savings, mutual funds, and other liquid sources can be used for down payment.
3. What are the rates/fees/terms?
Please refer to the Fix-and-Flip Loan Terms.
4. Are there any prepayment penalties on the fix and flip loan?
5. How quickly can we close?
We can typically close within 5 to 7 business days from the time of application to time of closing. This is provided the title company has received everything they need to complete title work and that the seller is also ready to close, which is not in our control.
6. Do you do “stated income” loans?
We work with hundreds of investors, a large percentage of them self-employed, so we understand that a typical self-employed borrower may have a more complicated tax return or financial information then someone who is not self-employed. We focus on the bigger picture items and use practical and logical underwriting methods. We have never done “stated income” loans which have recently come under significant scrutiny; but, since we are a portfolio lender with our own underwriting guidelines, we are able to offer practical underwriting decisions. We will consider both gross and net income on tax returns, and if a borrower has little income, but significant liquid assets, we can often qualify them on the basis of their assets instead of their income.
7. Do you allow properties to be titled in entity names, such as limited liability companies, partnerships, corporations, etc.?
Yes. The buyer can write the purchase contract in the entity name so that title to the property will be held in the entity name. We then require the individuals signing on the loan to guarantee the loan. Being able to close in an entity name is not something most lenders can do, but since we originate and retain all of our loans, we can offer unique benefits to our investors.
9. Do you allow double closings?
Yes. That is not to say that we will approve all double closings, as we will review and underwrite each deal on a case-by-case basis. But, we have approved and completed many double closing transactions.
10. May I complete work to the property myself or does it have to be contracted?
Yes. We allow borrowers to complete work to the properties themselves in many cases. However, if the project requires significant construction, like an addition or pop top or has structural issues, we would require a licensed general contractor in those instances.
11. What type of appraisal is done on the property?
We obtain an “as if repaired” appraised value from one of our approved appraisers. So, prior to you closing on the property, we have you complete our budget form and questionnaire, to show what you will be doing to the property to rehab it and the planned cost of those repairs. The appraiser then reviews the budget and appraises the property as if the work has been completed based on other recent sold comparable properties in the neighborhood or surrounding areas. While the appraisal is completed for us as the lender and is for our lending purposes, we do upon request share the information and appraisal with you.
12. Do you require a particular type of hazard insurance?
Yes, as the lender, we require hazard insurance for a one-year period with vacancy and vandalism coverage in an amount that covers the loan amount, at a minimum. You may also wish to consider liability insurance. We can provide a list of insurance companies upon request.
13. I haven’t located a property yet, but can I get preapproved, to know if I will qualify?
Yes, it is recommended for you to get preapproved prior to submitting contracts. Preapproval means that you have provided us all of the financial information that we require so that we can submit your request for underwriting. Usually within 48 hours of receiving a complete financial package, we can respond to you as to if you have qualified, how much you have qualified for, what the current terms would be, and we will issue you a preapproval letter. The preapproval letter is good for 60 days. If you have not secured a contract on a property within that time, please contact us so that we can resubmit your file.
14. How does the improvement escrow money you are lending work?
We hold the funds for improvements in an escrow account. We are one of the very few fix-and- flip lenders who allow advances for materials. After loan closing, you can submit for your first advance of up to 33% of your total draw account. At the time of your second draw request, we will require proper invoices and receipts and inspect the property to determine if the work for the first advance was completed. If so, we can advance the second 33% and the same applies for the final draw. This is the short answer, but more detailed instructions will be provided to you at the time of application and at your loan closing. We have a knowledgeable and experienced draw department to assist you after closing as well.