When it comes to placing property on the market, most people delay the task because they believe the real-estate can easy go at a higher value with a quick fix job. However, the lack of funds becomes an obstacle for many.
Luckily, there is a loan option in California that’s designed to cater to such fixer-upper projects; the fix and flip loan.
The existence of this loan gives many investors or property owners the opportunity to make the most of a real-estate. However, fix and flip loans in California require you to meet an eligibility criterion to qualify for the funding. This article breaks down the details of these requirements.
1. What is a Fix and Flip Loan?
Before understanding the criteria, it is important to know the details of a fix and flip loan to decide whether it fits your needs or not.
Also known as short-term bridge loans, these payment plans last for about 12 to 18 months and are created to provide financial assistance to investors in home improvement projects that will bring up their after-repair value (ARV).
These loans can cover up to 90% of the reconstruction costs and are limited to an amount of about 85% of the ARV.
Based on project needs, investors can use the amount for a minor change or a complete reconstruction.
2. Eligibility Criteria
The eligibility criterion for the fix and flip loan is to mostly to confirm your credentials and the property’s information. There are three main requirements to qualifying for the loan, these are:
- Credit Requirement
Due to the large investment, you’re required to have a really good credit score to qualify. From landing a job to getting insurance, a good credit makes all these tasks much easier. Most hard money lenders look for a minimum score of 620 to 660. However, if your project requirements call for a higher investment, you’ll need a credit score of about 700 to get a higher rate.
Not only does your current financial standing matter, but the lenders also study your credit history; this is to ensure there aren’t any past cases of bankruptcy or money laundering.
Your income also weighs in on the outcome because your debt-to-income ratio should display a stable earning and low to no presence of a credit card debt.
People or real-estate investors that have worked on past fix and flip projects have a chance at securing better rates due to their experience.
- Project Needs
Communicating your project plan clearly is everything; if details of your fix-up job sound ambiguous, you may not end up securing the loan.
It’s important to list all property details and values; mention where it’s located, it’s size and type along with the purchase value and ARV.
Next, you should provide a concise plan of your renovations. Give a cost breakdown of all the repairs and the materials; mention if you’re working with a specific team of contractors and using a renovation plan provided by them.
Lastly, it is important to list your intention after the renovation; money lenders need to know you have a sound plan for selling/ renting the property to know whether or not you’ll be able to repay on time.
- Documentation
Submitting documents are standard procedure for every loan application. These range from basic documentations, such as personal data and financial details, to additional documents that may be relevant to your case.
Since the property value weighs in greatly on the cost of repairs and the ARV, money lenders require the property’s purchase agreement to verify the amount. Additionally, if you can bring any documentation that backs your estimated ARV, it leads a strong impression and weighs toward a positive outcome.
As proof of funds, they will require you to cover a small percentage of the purchase and initially cover all payments to the contractors, also known as the rehab upfront. Once work begins and the lender finds work to be up to mark, they’ll reimburse the amount.
You’ll need to submit documentation for the planned rehab upfront as well, so the lender can conduct risk analysis and plan the return payments to you accordingly.
How to Guarantee You Secure a Fix and Flip Loan?
With the eligibility criteria for short-term bridge loans being quite detailed and strict, application processes may feel tense.
However, it is important to note that being concise and providing a thorough plan is the key to earning fix and flip loans.
To ensure you’re successful in financing your renovation plans, it is ideal to work with trusted and well-reviewed hard money lenders of California.
With experience handling personal and professional fix and flip projects over the past decades, our team at Insula Capital Group is dedicated to make your vision a reality. From covering up to 100% construction costs to offering 12 month loan payment plans, we ensure there are no hurdles in your revamping goals.
Want to learn more about our services? Check out our fix and flip plan to learn its details!
