Perhaps you’ve always had a knack for turning well-loved thrift shop goods into sparkly new treasures. Or maybe your recent DIY project was such a success that you’ve decided to move on to bigger and better things. Either way, you’ve found your calling as a house flipper.
But there’s one problem—you’re a bit strapped for cash, and your credit score isn’t quite as high as your house-flipping aspirations.
Before you set your sights on your next home makeover, let’s review your options together. In this guide, we’ll walk you through three fix and flip loans for beginners with bad credit so that you can turn your penchant for handiwork into a profitable venture.
How Do I Start Flipping Houses With No Money and Bad Credit?
There’s no way around it—even a rundown fixer-upper will cost you something. So, to secure the cash you’ll need to get started on your next flip, you may want to consider going about it in one of a couple of ways:
- Finding an investment partner – Working with a real estate investment partner, especially one with prior fix-and-flip experience, could be your golden ticket into the industry. A partner can not only assist you with financing but can also offer a sharp set of eyes to help you find the best properties for your purposes.
- Securing a loan – If you’d rather venture out on your own, you might have to look to loans as your source for cash. Luckily, there are a handful of fix and flip loans bad credit can’t stand in the way of. We’ll explore your options in more detail below.
3 Types of Fix and Flip Loans for Bad Credit
If you’re hoping to borrow money but are battling a bad credit score, fix-flip loans can be hard to come by—but not impossible. Between private lenders, home equity loans, and bridge loans, financing your next flip could be simpler than you think. Depending on your exact credit score, some of the below investment loans for bad credit may work for you.
#1 Private Lenders
Unlike traditional lenders like banks, private lenders, also known as hard money lenders, aren’t beholden to the stock market and other financial or government-backed institutions. As such, they may be able to grant loans with fewer restrictions.
The other plus side to this kind of hard money loan is that private money lenders can sometimes get you your loan amount much quicker than a bank can—an attractive perk that could give you a leg up against other flippers in a competitive market. But before you commit fully to this type of lending channel, be sure to:
- Inquire about origination fees, the duration of the loan, and how flexible your lender can be regarding the specific terms of the loan.
- Consider the “70% rule,” a house-flipping rule of thumb that advises flippers against investing more than 70 percent of a home’s projected value after repairs have been made.
If you already anticipate pushing the bounds of the 70% rule and your private money lender plans to charge a sky-high origination fee, it may be best to consider other options.
#2 Home Equity Loans
Do you have equity in another property? This could be an excellent way for you to finance your first fix-and-flip—even with a low credit score. The equity you’ve built in your property can become cash in hand through a refinance option. If you decide to go this route, you’ll work with your mortgage broker to take out cash on your home equal to what you’ve already paid on it.
If you’re denied a home equity loan, another option is to take out a home equity line of credit, or HELOC. With this type of home improvement loan option, you borrow against the equity you’ve already established in your property and pay monthly, similar to your credit card. An added bonus to consider with this method is that the interest accrued is often tax deductible.
#3 Bridge Loans
A bridge loan for flipping houses is worth considering as you shop around for loan options. This kind of loan provides short-term funding until either more funding comes through or your project is completed.
While lenders will certainly factor in your credit report score, you can strengthen your application by outlining the specifics of how and when you plan to repay or by sharing the details of your financial history. After all, a recent dip in your credit score doesn’t paint the full picture of your lifelong spending habits.
Before you go this route, consider the following:
- Make sure you’ve got a clear understanding of all the associated fees and closing costs. Bridge loans tend to have higher interest rates and closing costs, so you’ll want to make sure you see a profit after completing your project.
- Since loan requirements vary from lender to lender, do careful research. Some may require that you meet the same standards as if you were applying for a home mortgage, whereas others have little to no requirements at all. If you do have a difficult time getting a bad credit bridging loan, you may need to look to alternative financing options.
Sale-Leaseback: Fixing and Flipping Made Simple
From securing a bridge loan to working alongside a real estate investment partner, there are several ways you can still pursue your house-flipping dreams on a budget. Another way to propel your property makeovers forward is by converting your current home’s equity to cash. This is a great option to consider if you’re having a hard time getting a bridge loan or home equity loan with bad credit.
A sale-leaseback program makes it easy for you to convert your home equity into cash—regardless of income or credit score. By selling your house, you’ll get the cash you need to finance your flipping projects in a matter of weeks, all without the need for a real estate agent. Then, you can stay in your home as a renter and some programs provide you with the option to buy it back later or sell it on the open market—whatever you decide, it’ll be on your schedule.
MasterClass. 70% Rule Explained: How the 70% Rule Works in Home Buying
Investopedia. Is Interest on a Home Equity Line of Credit (HELOC) Tax Deductible?