What Is The Difference Between A Traditional Mortgage And A Fix-And-Flip Loan?
A mortgage is a loan people get when they want to buy a house to live in, but there is a different type of loan you can get if you are going to rehab a home. Rehabbing a home is a process that some people call "flipping." When you flip a house, you buy a run-down house, remodel it, and sell it. If you want to flip a house, you will not want to get a standard mortgage to buy the house. Instead, you should get a fix-and-flip loan. Here are some of the ways that fix-and-flip loans differ from traditional mortgages.
The Purpose
The main difference between a mortgage and a fix-and-flip loan is the purpose of each. A mortgage is generally a long-term loan that a person gets to buy a house. The person lives in the house for several years or longer. At some point, he or she may sell the house and pay off the mortgage, but this typically doesn't occur for at least a few years.
The purpose of a fix-and-flip loan is entirely different. A person who gets a fix-and-flip loans does so to purchase a property to flip. Once the person completes all the necessary renovations, he or she sells the house for a profit.
The Terms
The second difference between mortgages and fix-and-flip loans is the terms they provide. Mortgage loans typically last anywhere from 15 to 30 years. Fix-and-flip loans last anywhere from 12 to 24 months. Fix-and-flip loans are not long-term loans. They are short-term, temporary loans.
Secondly, you may notice a difference in the interest rates each loan type offers. Mortgages have lower interest rates than fix-and-flip loans. You pay a higher rate for a fix-and-flip loan because there is more risk tied to it.
The Frequency
One other difference you will find with mortgages and fix-and-flip loans is the frequency. If you get a mortgage, it is a one-time deal. You can apply for another mortgage if you decide to sell the house and buy a different one, but the new mortgage you get will be an entirely different loan.
Fix-and-flip loans resemble lines of credit more than a typical loan. If you get one, you can use the proceeds from it, pay it off, and take the money again.
If you want to rehab a property, start looking for a fix-and-flip loan. It is the best type of loan to acquire for this purpose. Contact a lender who offers fix-and-flip credit financing to learn more.