House flip investors will often need to take out a loan to purchase the property they are flipping. Some investors do have enough money on hand to pay cash for a property or to use a line of credit, but it can take several years before an investor is able to build up this kind of financial backing. You'll have to make use of a loan or mortgage. Wholesale loans are some of the best ways to flip a house.
In exchange for the chance to get a quick loan, within just a few days, the Hard Money Lenders will charge a higher interest rate on that loan and high origination fees.
However, many flippers looking to make money flipping houses prefer the hard money loans because they'll often fund up to 100% of the purchase price for the property.
HML are often private investors or companies that lend people money based on the property or business deal that money is going to secure. It's a much faster way to get cash for a real estate investment than going through the red tape at the bank. Plus, the lenders will usually look at the kind of deal you have or the property's potential resale value when giving a loan instead of your credit score.
Answers about Wholesale Loans
How Long Does it Take to Get the Money?
You can get access to a wholesale loan within 3 days from them receiving the final documentation for a loan application. This allows investors to move quickly on a property deal that they find.
How Much Money Can I Get?
HMLs will usually only give wholesale loans up to 70% of the after repaired value (ARV) of a property. That's about 30% less than the selling price of the property once you get it rehabbed and placed on the housing market. This practice helps ensure that an investor will be able to pay back the loan and still make money flipping houses.
What is the average interest rate on a wholesale loan?
Wholesale loans can charge anywhere from 12% to 18% interest on the amount of the loan. For a loan with 18% interest that can be a 5% origination fee, plus 12% annually.
How Long to I have to Pay the Loan Back?
Wholesale loans can vary in their length of time. When you take out a loan with the HML you'll usually write a note for any where between 3 and 12 months. It really depends on the lender and how much time you need to make money flipping houses with these loans.
Will I need to deal with other costs?
Yes, most HMLs will require there to be a Title Policy, some insurance on the property and a property appraisal. You'll also need to put some money down on the loan. So, you should expect to pay the origination points, any discount points and other closing costs before getting the loan. You know what they say, it takes money to make money flipping houses!
Will I be Making Regular Payments on the Loan?
Most of these loans are only going to be out for 3 months to a year. During that time you'll make interest payments on the loan. That is, only paying the interest on the loan. At the time you sell the property you'll repay the HML the full amount of the loan plus any remaining interest on the loan. You may be able to defer the interest to the end of the loan if you have completed previous deals with them.
Do I need to Worry about Credit?
HMLs do check your credit, but they aren't looking at your credit score. Instead they are looking at your history for evidence of bankruptcy, foreclosures, charge offs and listings from collection agencies. They just want to know if you have a history of skipping out on paying back loans and bad debt.
It's possible to have a low credit score, but not have any bad marks on your credit history. So, wholesale loans are a good option for young real estate investors and those who don't typically carry a lot of credit.
Wholesale loans are a great way for investors to pick up house flip properties on the quick. It's not a good idea for an investor to hold them on the long term because of the high interest rate. Though, this is a good practice for anyone holding property in order to flip it.
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