Understanding Financing Terms

3 Vital Things To Know About Investment Property Loans

If you have extra time on your hands and knowledge with home repairs, you might want to start flipping some houses in your area. Flipping houses is an endeavor that people do to make money and to feel the excitement. If you would like to buy your first project to flip, here are three vital things you should know as you look for a way to borrow money for your project.

Some Lenders Base the Loan Amount on the Finished House Value

The first thing to understand is how these loan types work. Investment property loans fall into the high-risk loan category, primarily because there are many risks tied to flipping properties. As a result, lenders go through several steps before approving them and determining how much money to offer.

One smart move is to find a lender that bases the loan amount on the finished house value. If you can find a lender that does this, you can borrow enough money to pay for the house purchase and most of the repairs. When lenders base the loan amount on the finished value, they will generally give you a loan for 80% to 90% of the finished home value. If this occurs, you should have most of the money you need for the project.

These Are Short-Term Loans with Higher Interest Rates

Because lenders have a lot of risk with these loans, they typically charge higher interest rates for them. They also consider these short-term loans, which means you might have to repay the money within one year. As a result, you will need to be prepared to start the project as soon as you receive the proceeds. You will need a plan and a budget for the project. You will need to work quickly through the project to complete it before your investment loan is due.

Tips for Using Investment Loans Wisely

Finally, you will need to learn how to use these loans wisely. To do this, you will need a clear plan before you begin. Secondly, you must choose the right homes. Finally, you will need to evaluate the homes before you buy them so you know exactly what they need.

Lenders that offer investment property loans might offer several different options. One option is a fix-and-flip loan, and another option is a hard money loan. You can learn more about these loan types by contacting a lender.