Most properties that an investor buys with the intention of flipping for profit do not meet FHA guidelines.
Why does that matter?
In order to qualify for “traditional” financing to buy a property, a home must meet these guidelines. Otherwise a lender can’t write a loan through Fannie Mae or Freddy Mac. Which means that you can’t walk down to your local bank or call up Wells Fargo to have them fund your deals.
The majority of fix and flip loans are financed by private money or hard money lenders, but what separates the traditional from private?
Private lenders will loan money based on an asset. In this case, the asset is a piece of real estate. The good ones are people who are (or have been) real estate investors themselves, so they really understand what it takes to fix a property and sell it for a profit.
What private and hard money lenders will do is look at the property you want to invest in. They’ll ask you for your purchase price and what repairs you want to do as well. If they can see by the data that an investor can buy a house, do the repair work and quickly sell the home for a profit, they will fund the deal.
The lending decision is based entirely off of the aspects of the property – not the borrower. This means that you can get financed if you have bad credit or no credit. You don’t have to show job history or prove you have any income or assets. Private and hard money companies can do this because they use capital from private investors to fund fix and flip projects without having to abide by traditional mortgage guidelines.
Something you need to understand about a fix and flip loan is that it is usually for a very short term. Five to twelve months is common in the industry. Because the loan is short term, many lenders will not ask for payments during the term of your loan. However, you need to make sure you know what you are doing so that you can get the property sold and thus pay off your note. If you fail to do this, you will be foreclosed on and the hard money lender will take control of the property you were trying to flip.