There’s a reason why the real estate loan market is worth an estimated $429 billion. Anyone who has ever purchased a home before knows that it’s one of the most expensive purchases you will ever make.

And, that’s not even covering the cost that comes with renovation. If you’re the type of investor that likes to buy fixer-uppers to renovate, then this cost can make it difficult to get a new project.

The good news is that there is a specific type of loan for people in this situation. It’s known as a fix and flip loan and it’s a type of bridge loan. But what exactly is this type of loan?

And what are some of its features that make it different from other short-term loans? In this article, we’ll answer these questions and more. That way, you can decide for yourself whether or not it’s the right call for you.

What is a Fix and Flip Loan?

Before we begin it’s important to first go over exactly what a fix and flip loan are. This loan is a type of subset for the broad category of bridge loans. It’s meant to be used by real estate investors to buy a home, renovate it, and sell it.

As the name suggests, this all happens pretty quickly. Typically a fix and the flip loan will last between twelve and eighteen months. After that, the investor can sell the property for a profit. So, what’s the difference between a fix and flip loan and a bridge loan?

Well, most bridge loans usually don’t cover the cost of renovation. Instead, they just cover the cost of the house itself. But, fix and flip loans will typically cover both of these expenses.

How Does a Fix and Flip Loan Work?

A fix and flip loan can be broken down into two parts: the home purchase and the home renovation. The home purchase is typically the most straightforward part of the process.

The lender will typically arrive at a loan amount by looking at the after-repair value of the property and the total cost of the project. From there, it’s similar to mortgage finance. You’ll need to submit an application, documentation, as well as an order appraisal.

Since this is essentially a business deal, then you must also submit a business plan. Make sure to include as much information about your timeline as possible. Next, there’s the renovation portion.

Different lenders will have different ways of dealing with this. However, one popular method is to have the investor pay for everything initially. Then, after they’ve completed a portion of the renovations, they receive reimbursement.

The lender will likely do this by sending an inspector out to the property. Once their report comes back in, then you’ll get your money.

What Are the Advantages of a Fix and Flip Loan?

There are a lot of advantages that come with taking out a fix and flip loan. First, it’s quick financing. Traditional home loans can usually take at least a month for all the paperwork to go through before it’s approved.

However, the same isn’t true for fix and flip loans. These types of loans can be approved within the week. The terms of the loan are also a lot more flexible than traditional ones.

A fix and flip loan also come with a low monthly cost thanks to interest-only payments. There’s less risk when you take out one of these loans too. Since the property itself is the collateral you don’t have to worry about potentially losing your own home.

Finally, fix and flip loans are underwritten based on the strength of the investment, not your income. So, you can complete a project even if you don’t have a ton of money to finance it. Just make sure that your investment strategy is sound.

What Are the Disadvantages of a Fix and Flip Loan?

Sadly, fix and flip loans aren’t perfect. Some drawbacks come with using them. For one thing, these loans come with high-interest rates. As such, you could end up spending a little more on them.

It also usually requires some upfront cash for the renovations. This can be a challenge if you don’t have the funds. Things can also go sour with this type of loan if the project takes longer to renovate than expected. So, you’re on a bit of a tight schedule with this loan.

Where is the Best Place to Get a Fix and Flip Loan?

Hopefully, at this point, you know whether or not a fix and flip loan is the right call for you. If it is, then the next step is to find a lender. We recommend starting in the local market.

That way, you have a chance of getting with a lender that knows a thing or two about the real estate market in the area. You should also make sure that the lender offers the type of loan that you know.

Not only that, they should specialize in it. For example, Kiavi is a great option for people looking for these types of bridge loans. Once you find the right lender and get approved, then it’s time to schedule the project.

Want More Content? Keep Reading

We hope this article helped you answer the question, What are a fix and flip loan? As you can see, this flexible type of loan isn’t for everyone. But, if you need money for your home fast, then you might as well try for a fix and flip loan.

Just remember that they can be difficult to get. So, don’t be discouraged if it takes you a while. Did you enjoy this article? If the answer is yes, then you’re in the right place. Keep exploring to find more topics that you’re sure to love.