Baltimore Fix and Flip Loans: 5 Types’ Huge Pros and Cons
Fix and flip loans come in all shapes and sizes. However, not every option will work for everyone. In this article, we’ll break down the 5 main loan types’ pros and cons. This way, you can make a more informed decision for your fix and flip.
Main Takeaways:
- The 5 main types of fix and flip loans flippers use are traditional bank loans, government-backed loans, home equity loans, private money loans, and hard money loans. Each has its pros, such as low interest and down payments, and cons, like restrictive requirements and terms.
Traditional Bank Loans
When most people think about fix and flip lenders, like Baltimore hard money lenders, this is the first thing that pops up. These loans are self-explanatory; they’re fix-and-flip loans you get from a bank. Their pros and cons are as follows:
Pros of Traditional Bank Loans
- Low interest rates, typically below 7%.
- Those with a good financial background can qualify fairly easily
- Terms can be decades-long
Cons of Traditional Bank Loans
- Approval can take months, which effectively halts your investment plans until you get your go-ahead or rejection
- Your property must be in good condition. This may not work for those who plan on using their loan to flip distressed properties.
- Many times, you can only use bank loans for specific purposes, like buying homes. For example, you oftentimes can’t use the loan to fund renovations.
Government-Backed Loans
Various sections of the government provide property loans. For example, they offer Federal Housing Administration loans for prospective homeowners. Unfortunately, as we’ll get into below, they may not be the ideal fix and flip lenders. Here is the intel on them:
Pros of Government-Backed Loans
- Lower-cost or no upfront down payments.
- Low interest rates, often lower than traditional bank loans.
- Easier criteria, such as lower required credit scores.
Cons of Government-Backed Loans
- Many government loans require you to use their loans on your primary residences. Furthermore, you must live in the properties throughout the loan term.
- Can require upfront and monthly fees. For example, an FHA loan requires upfront (1.75% of the entire loan amount) and monthly insurance premium charges.
- Some government loans may be on the smaller side, which can impede your goals if your project needs extensive funding.
Home Equity Loans
Another option for fix and flip loans is the home equity line of credit (HELOC), also known as a home equity loan. With HELOCs, homeowners use their existing home equity to buy a new property. Now, let’s explore their impact on fix and flip investors:
Pros of Home Equity Loans
- Loan terms are long, typically 10 or 20 years in length.
- Since you’re using your own home equity, you don’t need to pay a down payment.
- You may be able to deduct the HELOC interest on your tax returns.
Cons of Home Equity Loans
- Interest rates aren’t fixed, so they will ebb and flow as the market fluctuates.
- To qualify for a HELOC, you must have at least some existing equity in your property. So, for those using their fix and flip loans to buy properties, this can be unviable.
- On top of interest, HELOCs usually require you to pay yearly expenses like maintenance, transactions, and other fees. Considering that HELOCs last for decades, these costs can snowball quickly.
Private Money Loans
Private money loans are fix and flip loans provided by real estate investors. They come with some pluses and minuses:
Pros of Private Money Loans
- Each lender can set their own eligibility criteria, so you might find one whose standards you meet easily.
- Has informal structuring that varies by lender, so you may encounter some with flexible plans.
- There is one common criterion, though, and that’s having your investment property as collateral. Since most flipping projects naturally involve an investment property, this can be an easy ask.
Cons of Private Money Loans
- Many private fix and flip lenders are unlicensed, so you may not be working with a credentialed professional.
- Usually require higher down payments and interest rates than traditional fix-and-flip lenders.
- Fix and flip loan terms are typically short and may not be a good fit for long-term projects.
Hard Money Loans
Hard money loans are like private money loans, with one key difference: they’re offered by officially registered, professional businesses. Let’s look into them:
Pros of Hard Money Loans
- You can use them for virtually any purpose, such as renovating or marketing your flip, as long as it’s for commercial real estate usage
- Loan terms are flexible and can be customized depending on each investor’s needs. Also, investors with more experience may be rewarded with specially made, better loan terms.
- Time commitment is typically shorter than what traditional fix and flip lenders require.
- Loan approval is fast, usually within a few days or weeks.
Cons of Hard Money Loans
- Hard money lenders may require higher interest rates and down payments to offset their expedited loan delivery and quality control expenses.
- Your property is used as collateral. While this can make loan eligibility easy, it also means you have to plan ahead to ensure you can repay your loans properly. If you fail to pay your fix and flip loans, you will have to surrender your property in exchange.
How to Get Funding from Fix and Flip Lenders in Baltimore
In summary, there are 5 main types of fix and flip loans out there, traditional bank loans, government-insured loans, HELOCs, private money loans, and hard money loans.
As we’ve covered, many of these loans have certain disqualifying qualities that make them unideal for a fix and flip:
Traditional bank loans can take months for approval, require pristine homes, and restrict how you use the loan.- Then, government-backed loans are oftentimes solely for primary residences, not investment properties.
- HELOCs require home equity, don’t have fixed rates, and can have yearly fees for decades.
- Meanwhile, many private money lenders operate unofficially and are therefore less secure.
That’s why hard money fix and flip loans may be your best alternative. Hard money lenders are professional, government-registered fix and flip lenders who don’t limit your loan to primary residences, pristine residences, or specific uses. They don’t demand fees for decades because they usually only last as long as your fix and flip project needs them to. Most importantly, they don’t take months for approval. In fact, hard money lenders usually approve your loans within days or weeks.
Furthermore, when you choose locally owned and operated fix and flip lenders like Maryland Hard Money Lenders, you can get unparalleled customer service. We have years of expertise in the Maryland housing market and beyond, so we can help you get the biggest bang for your buck.
Best of all, if you’re an experienced investor with sufficient collateral and a good credit score, we can offer you a special deal. Those who meet our requirements can enjoy up to 100% funding, no down payment required! So, call us today to jumpstart the approval process and get your project running.
