People just starting out with fix-and-flips are often surprised to learn that many traditional funding sources are not available to real estate investors. Because more investors are successful with commercial hard money lenders, they tend to be the top pick.
Most people considering the fix-and-flip biz have gone through the process of purchasing a home for themselves or their families before. With the exception of the mortgage crisis a few years back, qualifying for a loan has historically been a straightforward process. You go into a bank or find a broker, they look into your credit and ability to pay, and then they either offer you a deal or they don’t. Choosing the right type of mortgage when you’re a homebuyer is often quite simple because banks want people living in the homes. It’s less risky for them when someone needs the home to live in. There are also government programs designed to help people on the path to homeownership, which can open opportunities for those who miss the cut.
It’s different when you’re investing. You aren’t living in the home, so the bank will consider the loan to be too risky. After all, you could theoretically just walk away from the property and your lifestyle may not be impacted… at least not until the garnishments start, but that’s a whole different ballgame, and one the banks do not want to play.
When you plan to live in the home, it’s considered an “owner-occupied” property. When you don’t, it’s referred to as a “non-owner-occupied” property. While lending institutions can add their own qualifiers onto this, you typically need to plan to live in a home more than 50% of the time and must plan to consider it your primary residence to qualify for an owner-occupied loan. This clause doesn’t apply to most flippers, so that’s where Arizona Commercial hard money lenders come in.
Learn the Benefits and Pitfalls of Many Forms of Lending
As a flipper, you may still be tempted to try to qualify for a traditional mortgage. If you plan to live in the home, this may be a less-expensive way to borrow. However, it’s also worth noting that owner-occupied loans have homeowner protections built in, which increases the length of time to get funded and can make it difficult for a flipper to close on a property. Arizona Commercial hard money lenders typically deal with non-owner-occupied loans, so funding can be measured in days. Banks are also wary of lending on properties that are in severe disrepair, which can throw a wrench in the typical flippers plans.
The type of funding that’s right for you will vary based upon the situation.
Arizona Commercial hard money lenders provide funding for an underserved market; typically, those who need funding fast and those who don’t qualify for bank loans, perhaps due to the condition of the property, non-owner-occupied status, or poor credit. As these roadblocks are eliminated, other forms of lending may be more cost-effective in the long run. It’s also important to note that offerings will vary from one lender to the next, so it’s worthwhile to explore the rates and terms before jumping into a deal. Familiarize yourself with multiple forms of lending and keep options in your back pocket, so you can find the right solution for any project that comes up.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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