At this month’s Fix and Flip Real Estate Meetup of Denver, two, local private money lenders provided expert opinions on fix and flip financing.

I spoke with Gabe Bedrolla, Loan Officer at American Pacific Mortgage and Tom Kelly, Commercial Mortgage Consultant at Gabe specializes in financing 1-4 unit properties in the Denver Metro area, reviewing and advising potential borrowers on their loan program options. Tom works to determine the best funding strategy for clients interested in financing multi-family, fix and flip and commercial deals.

When a client approaches you and is ready to flip a house for the first time, what are some basics they should know?

GABE: Do your research so that you “know before you owe”. Check out the neighborhood and market trends to better understand if the real estate investment is going to go the way that you intend.

Second, always have a backup plan. Borrowers need to have a 6-12 months reserve of mortgage payments for incidentals. Depending on location, most conforming loans have a 90 day waiting period before borrowers can sell the property. Therefore, house flippers may need to hold properties longer than planned. Payments are due within 60 days upon funding the loan, so be aware of timelines.

“Do your homework.”

TOM: My best advice is to house flippers is to do your homework and understand what goes into lending decisions.

All real estate investors and house flippers should be familiar with 5 C’s – the criteria that go into any credit decision regarding financing or lending. As in most things, credit depends on the person, situation, and property, but standards that every lender considers are:

  • Collateral: The selected property
  • Character: Based on credit score and experience.
  • Capacity: Available cash balances, income, the liquidity of the property and tax return.
  • Capital: The down payment.
  • Conditions: The terms of the loan, market conditions and property conditions. Lenders are wary of properties with major structural damage (avoid big issues in the property - up to 70 %).

The more aligned you are with this criteria, the better rate and terms. The benefit of using Fixters Funding Network is that we help flippers explore all options based on where they fall within this criteria. There are options for nearly every house flipping business.

What options do people have for financing their projects?

GABE: There are 100’s of options available: rob a bank, sell a kidney… but in all seriousness: residential mortgage loans, equity from your current home or investment properties, 401k loans, basic construction loans or hard money/private investor loans.

Also, there are 203k/renovation loans, bank statement loans, and asset inclusion programs. For short-term “band-aid” funding solutions, you can use government assisted loans with zero money down. You can also use gift funds for a down payment, just make sure there is a paper trail and the transfer is completed 60-90 days prior to going under contract on your property.

It’s all available, you just need to ask a trusted advisor who is familiar with your situation. Lenders are there to help you. If you win, we win.

“If you win, we win!”

What are the minimum qualifications for fix and flip lending?

GABE: Every lender and loan program is different. Each time you apply you will get a new set of questions because each situation is like a fingerprint – it’s unique.

My team uses basic Fannie Mae guidelines (unless the borrower is using a government-assisted loan), which would be zero-5% money down, a minimum credit score (640 is good – anything below that is going to be on an exception basis), and a debt-to-income ratio of 45-50% or lower. The funds for your down payment must be sourced. Lastly, lenders are going to want to see that there are no major, recent derogatory events on your credit.

Best practice – get pre-approved, and then the lender will tell you what you need to do. Again, THEY WANT YOU TO WIN.

Overall, do some research and partner with a respected, knowledgeable advisor that can offer guidance on your fix and flip financing options and insight on how to map a path to success. If you need a fix and flip loan, contact Fixters Funding Network. We have financial consultants ready to assess your current situation, make recommendations on options and help you with credit repair if needed.