Types Of Loans for Flipping a House

Flipping a home may be your creative hobby or a way to build wealth. But without the right financing, it’s easy to get in over your head. While you could use a traditional 15- or 30-year mortgage, these options are designed for long-term investments, not fast-paced flips. Home loans for flipping houses are designed for speed, flexibility, and short-term investment. The right loan can help you manage costs, reduce financial risk, and boost your chances of turning a profit. Let’s take a look at your potential options.

Key Takeaways

• Hard money loans offer fast approval and funding, but they come with higher interest rates and shorter terms.
• Home equity loans and HELOCs allow you to borrow against the equity on your primary home, providing a flexible and cost-effective way to fund a flip.
• Cash-out refinancing gives homeowners access to a lump sum of cash by tapping into existing equity, but it resets your mortgage terms.
• Before choosing a loan to flip a house, consider risks like renovation delays, shifts in the market, and holding costs, while always building flexibility into your budget and timeline.

1. Home equity loans

If you already own a home, tapping into the equity you've built can be another way to finance a house flip. A home equity loan (also known as a second mortgage) or home equity line of credit (HELOC) lets you borrow against the value you've built in your property, often at lower interest rates than other loan types like hard money loans.

To qualify for a home equity loan or HELOC, lenders typically consider your credit score, the amount of equity in your home (usually requiring at least 15% to 20% equity), and your debt-to-income ratio. Depending on the loan type, repayment periods can range from 5 to 30 years.

According to ATTOM property and real estate data, 64% of flipped homes were purchased with all cash deals. For that remaining 35% who chose financing, home equity loans and HELOCs were considered the best loans for flipping houses because of the lower rates and more flexible terms.

Pros

• Lower interest rates than hard money loans
• Fixed terms for predictability (home equity loans)
• Flexible access to funds (HELOCs)

Cons

• Your home is used as collateral for the loan
• Generally, you'll need 15% to 20% equity to qualify
• May take longer to process than hard money loans

2. Cash-out refinancing

Cash-out refinancing is another strategy homeowners can use to fund a house flip, especially if you've built up considerable equity in your current home. With a cash-out refinance, you replace your existing mortgage with a new, larger home loan, then receive the difference in cash. This lump sum can then be used to purchase and renovate a house you intend to flip.

This method of financing a house flip can be appealing because it offers lower interest rates than hard money loans and you don't take on an additional loan payment. Keep in mind that refinancing also resets your mortgage timeline, which may not suit your long-term financial and homeownership goals.

Pros

• Access to a large lump sum of cash
• Predictable repayment terms as part of your new mortgage

Cons

• Restarts your mortgage terms and repayment timeline
• Closing costs and other fees may apply

3. Hard money loans

Hard money loans are fast, flexible, and based more on a property's value than your current credit profile. This makes them popular among real estate investors.

These short-term loans are typically funded by private lenders and designed specifically for investment opportunities like house flipping. Unlike traditional mortgages, they don't require a lengthy approval process, making them a good option when speed is critical.

However, they do typically come with higher interest rates and shorter repayment terms than other types of loans for flipping houses, which makes timing and budgeting an important consideration.

Pros

• Fast approval and funding
• Less emphasis on credit score and profile
• Ideal for distressed or non-traditional properties

Cons

• Higher interest rates and fees
• Short repayment window (often 6 to 18 months)
• May require a larger down payment

Considerations before you finance a flip

While loans for flipping houses can provide the capital you need to get started, they also come with added pressure.

Unlike buying a primary residence, flipping is all about speed, timing, and tight budgets. Borrowing money means you'll be paying interest while also covering renovation costs, holding expenses, and unexpected repairs. Market shifts can also happen fast, potentially impacting your final return on investment (ROI).

Before choosing a loan, consider your timeline, experience level, and local market conditions. If housing demand drops mid-project or material costs spike, your potential profit can quickly shrink. So before taking on debt for a flip, always have a backup plan, build a financial cushion, and stick to a firm exit strategy.

How to get a loan for a house flip

Once you've chosen the right financing option for your flip, the next step is to apply. When flipping houses, the loan process varies slightly depending on the loan type. However, most lenders will require documentation to verify your financial standing and project plan.

Here's what to expect when applying:

• Choose your loan type: Consider whether a home equity loan, HELOC, cash-out refinance, or hard money loan best fits your goals.
• Pull together all your documents: This may include proof of income, credit score, existing mortgage details, renovation budget, and a timeline for the flip.
• Estimate the After-Repair Value (ARV): Many lenders will assess the projected value of the home after improvements.
• Apply online: Start the process with AmeriSave using our online application.

Ready to explore your options on loans for flipping houses? Apply now and see what you qualify for in just a few steps.