The 6 Best Loans for Flipping Houses
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When flipping homes, paying cash is obviously a best-case scenario: You can buy properties in any condition, there’s no underwriting slowing down the process, and your margins won’t get gobbled up by loan-related closing costs and interest payments.
But paying cash isn’t always an option — especially if you’re just starting out. The good news is there are plenty of great loan options for flippers, specifically. In this guide, we’ll break down everything you need to know about the six best loans for flipping houses.
🔎 At a glance: Loans for flipping houses
N/A - profit share
Up to 5 years
Good credit score, high income, and low debt-to-income ratio
Property with investment potential
Property with investment potential
Strong business plan and a network of high-net worth contacts
Track record of flipping houses plus property with investment potential
Promissory note between you and the seller
*Interest rates, approval timelines, and requirements may vary by lender and/or situation.
How to get a loan to flip a house: Getting started
While each of the loan options described below will have different requirements for approval, most lenders will look at five aspects of your personal finances:
- Credit score: Your credit score tells lenders your “creditworthiness,” or how well you manage debt. In general, your score should be in the good to excellent range (670 to 850). That said, it is possible to get a loan with poor credit, though you may have to pay higher interest or fees.
- Income: Lenders will look at your sources of income (including salaries, investment dividends, and rental income) and your monthly cash flow (income minus expenses). While high income helps, it’s definitely possible to get funding to flip homes without it.
- Assets: These include your savings, investments (stocks, bonds, commodities, crypto), retirement accounts, home equity, and other real estate properties. When looking at assets, lenders typically ask, “What could this person sell if they can’t repay the loan?” They may ask you to put certain assets up as collateral.
- Debt level: Lenders will look at your debt-to-income (DTI) ratio, which measures how much of your monthly income goes toward debt and bills. Aim to have a DTI that’s lower than 30%.
- Business plan: Many lenders want to know how you plan to rehab and sell properties. How much do you expect the property to appreciate, and how much money will you spend on repairs? You might also need to give lenders a “resume” of properties you’ve successfully flipped and sold in the past.
Top 6 financing options for flipping houses
1. Conventional loans
What it is: Loans issued by large mortgage lenders or banks.
Ideal for: Investors with good credit scores and high income, who can put up a substantial downpayment; also ideal for professionals who plan to live in the homes they’re actively flipping.
How to get your loan: Show a bank you can make monthly mortgage payments on time. You’ll need a good credit score (670 or higher), with no foreclosures or bankruptcies on your record. You should also have a low debt-to-income ratio (no more than 43%), and a down payment of at least 3%. The property you’re buying must be in a livable condition, with no major repairs needed.
» MORE: Conventional Loan Requirements
- Interest rates and fees are low: Relative to some other short-term loans, you’ll pay very little in monthly interest, closing costs, and origination fees.
- The approval process is slow: Lenders will take their time combing through your finances, and it will usually take 30-60 days to secure the loan.
- Hard to get loans for distressed properties: Strict underwriting requirements make it hard to get loans for properties that need substantial work. If the house isn’t “livable,” you probably won’t secure approval.
- Loan limitations: You can usually only have four to ten conventional loans at a time, which could severely limit how many homes you can flip.
- Down payment required: You’ll need at least 3% of the home’s purchase price in cash to get a conventional loan. The more down payment you have, the lower your monthly mortgage payments.
👉 Bottom line: Get a conventional loan if you’re flipping a house that’s in a livable condition, or if you plan to flip only a handful of properties per year. Because the underwriting phase is so slow, this option isn’t ideal for investors who want to flip houses quickly, even if your finances are steller.
2. Hard money loans
What it is: A short-term loan from private lenders, usually with a term of 1-3 years. Hard money lenders pool money from wealthy individuals and lend it to investors at a steep interest rate.
Ideal for: Investors with little upfront cash, high debt, or poor credit. Also ideal for investors in good financial standing who just want a short-term loan to fund a quick fix-and-flip.
How to get your loan: A hard money lender looks almost exclusively at the investment potential in your flip, not your finances. Your investment property becomes collateral on your loan, so if you don’t repay your debt, the lender will just take the property.
You can use a lending website, like Kiavi or Lima One Capital, to get a hard money loan online. Your real estate agent may also be able to refer you to local hard money lenders (which adds in a layer of credibility as well).
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- Quick turnaround: Hard money lenders usually make a decision within 1-2 days after you apply. They won’t analyze your income, taxes, or credit, drastically cutting the underwriting process.
- Loans based on a property’s potential: Hard money loans are often based on the future value of a property (“after repair value”), not the current market value. This can help you secure financing for rehabbing costs.
- Looser credit and income requirements: As long as you have a solid property deal on your hands, hard money lenders will often overlook a poor credit score or even a bankruptcy on your record.
- More flexibility: Hard money lenders create terms on a case-by-case basis, so you could negotiate more favorable terms.
- Higher interest rates: You’ll pay more money to borrow hard money loans than conventional ones. Expect an interest rate between 7-15% — or higher.
- Higher fees: Closing costs and origination fees can be as high as 7% of the loan amount.
- Loan terms are short: You often have to repay the loan within three years or less. That’s usually not an issue for a quick flip, but it’s a risk factor to be aware of.
👉 Bottom line: If your credit isn’t perfect, or you don’t have the income level to get other loans, a hard money loan might be your only option. They’re an expensive way to finance an investment, with interest rates ranging from 7.5-15% and higher.
3. Portfolio Loans
What it is: Loans issued by small, local banks. These loans aren’t resold to secondary institutions, like Fannie Mae or Freddie Mac. The money literally comes from the bank itself.
Ideal for: Real estate professionals who want to flip distressed properties or plan to take out more than 10 loans at a time. Also ideal for investors with less than stellar credit.
How to get your loan: You’ll need a solid property deal first. A portfolio lender will scrutinize the potential in your property flip, then decide if it's worth their investment. They might also look at your finances before making a decision, though they’re typically more flexible about financial standing than larger banks who issue conventional loans.
To find portfolio lenders, target small, local banks with fewer than five branches, then ask if they issue portfolio loans. Alternatively, your real estate agent will likely know portfolio lenders near you.
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- More flexibility: If you have a solid business plan, your lender may not require a good credit score or high income.
- No loan limits: Portfolio lenders often let you take out as many loans as you want.
- Loans designed for house flipping: Some portfolio lenders will help you cover the rehabbing costs as well.
- Faster underwriting process: Unlike conventional loans, portfolio loans are issued quickly, often in two weeks or less.
- Potential for long-term partnerships: If you show portfolio lenders you can successfully flip houses (and pay them back), they’ll feel more comfortable lending you more money. They might even lower the interest rate, especially if they’re making money, too.
- Expensive: Interest rates on portfolio loans are higher than conventional ones. Expect to pay higher origination fees and closing costs, too.
- Short terms: Many portfolio loans are shorter than 12 months, so there’s not a lot of margin for rehab delays or waiting out unfavorable market conditions.
- More experience upfront: You’ll likely need to prove to portfolio lenders that you have real estate experience before they let you borrow money.
👉 Bottom line: Portfolio loans are often less expensive than hard money loans. The problem is finding them: Portfolio lenders often don’t market themselves to the public, meaning you’ll have to ask local lending institutions if they offer these products. If you can establish a long-term relationship with a portfolio lender, you could potentially borrow money at a lower interest rate.
4. Private investors
What it is: Wealthy individuals who lend money to real estate professionals, usually for a steep cut of the final profits (often 50% or more).
Ideal for: Real estate professionals with a vast network of high net-worth individuals, including wealthy friends, family, and acquaintances.
How to get your loan: First, you’ll need to identify wealthy individuals who might be interested in investing in your real estate ventures. Wealthy friends and family are a good place to start, but if that’s not an option, try targeting professionals who have high incomes, such as doctors, lawyers, and other real estate investors. You can also network via online forums like BiggerPockets.
To persuade these people to invest in your projects, do these three things:
- Show them your real estate ventures are safer than other investments (like stocks).
- Present them with a business plan, or a track record of flipping properties. You can also show them hard data, like the average return on an investment property in the area you’re looking to buy.
- Offer them a lucrative cut of the final profits.
- Deals move quickly: No underwriting required.
- Flexible loan terms: You and the private investor can negotiate the loan’s terms with no legal requirements.
- Get the full loan amount: Plus money to cover the rehabbing costs.
- No need to have strong credit: If you can persuade private investors that they’ll make more money investing in your projects than other securities, they might not care to see your finances.
- Hard to scale: You might have trouble finding high-net worth individuals to fund your real estate ventures. Even if you do have wealthy friends and family, you still have to convince them to loan you money.
- Expensive: Private investors usually want a large chunk of the final profits, often 50% or higher.
- Relationships at stake: If you borrow money from friends and family, you might risk damaging your relationship if the flipping project fails.
- Less control: Because investors are giving you their money, their opinion may outweigh yours. They might not agree with your construction decisions, even if you have more experience flipping houses.
👉 Bottom line: Private investors are often people who want to invest in real estate, but don’t have the time or knowledge to flip houses. They give you the money, you do the dirty work, and you both profit from it. Though this option requires the least amount of underwriting—perhaps none at all—it can be very expensive for you, especially if the investor wants more than 50% of the final cut.
5. Crowdfunding platforms
What it is: Online platforms that pool small sums of money from multiple private investors.
Ideal for: Investors who don’t have a network of high-net worth individuals, or who can’t convince private investors to dish out large sums.
How to get your loan: You need to be an experienced real estate professional. These platforms will often interview you before you can become an active borrower. They’ll want to know about past successful flips, as well as what you plan to do with their investor’s money. Expect to pay fees to sign up, too.
To get started, here are some popular crowdfunding platforms to check out:
- Instant network: You don’t need to find wealthy individuals to invest in your projects. These platforms bring the investors to you.
- Larger loan amounts: Because you have a massive pool of investors, you could borrow more money from crowdfunding than other loan options.
- Usually expensive: You’ll typically pay high interest rates and origination fees, often the highest among the loans on this list.
- Steep barrier to entry: Depending on the platform, you might need a long track record of success to join.
- Time-intensive: It can take several weeks, sometimes months, to pool enough money to fund your project.
👉 Bottom line: Crowdfunding your property flip is beneficial when you can’t drum up money from other lenders, such as portfolio lenders and high-net worth friends. But it can be expensive, and the process might require more legal paperwork.
6. Seller financing
What it is: The homeowner finances the purchase for the buyer.
Ideal for: Investors with poor credit or limited cash on hand, or who have no other way of borrowing money.
How to get a loan: You and the homeowner will create a promissory note with important details, such as…
- Initial down payment: The amount you agree to pay the homeowner up front.
- Interest rate: How much the seller charges you for borrowing their money or equity.
- Payment schedule: The day you agree to make payments, as well as how long the loan will last. Most seller financing loans work like balloon loans, meaning you make small monthly payments for a short amount of time (say, five years), then one large payment at the end.
- No banks or lenders involved: Close on deals faster without waiting on underwriting.
- More affordable terms: Work out a favorable interest rate and avoid high origination fees.
- No need to have strong finances: Sellers may overlook a poor credit score or low income level if you have a strong business plan.
- Short mortgage terms: You usually have less than five years to pay off the property, often with one large payment at the end
- Higher interest rates: Sellers will charge higher interest rates than conventional loans.
👉 Bottom line: Seller financing is great if bad credit stops you from getting a conventional loan, or don’t have much money for a down payment. Of course, you have to repay the seller, and the interest rates might not be favorable to you.
Summary: Loans for flipping houses
- Paying cash is the best way to flip houses. But if you don’t have deep cash reserves, taking out a loan is your next best option.
- A conventional loan is often the cheapest way to borrow money, but the underwriting process is slow and clunky. You’ll also need strong finances and credit standing.
- Portfolio and hard money lenders look at the potential in your property investment, rather than focusing on your financial standing. The process moves quickly, but the interest rates and fees are often high.
- Private investors can lend you money to flip houses for a percentage of the final profits. Likewise, crowdfunding can help you get small sums from multiple investors through online platforms.
- Seller financing is when the owner finances the purchase for the buyer. These deals can move fast, but the loans can have high interest rates and the terms are short.
FAQ about loans for flipping houses
The 70% rule says you should spend no more than 70% of a home’s after repair value (ARV) minus the costs of rehabbing. For instance, let’s say a property’s ARV is $300,000, and you estimate repair costs will total $65,000. In this case, you would take 70% of $300,000 to get $210,000, then subtract it by $65,000 to get $145,000.