Why Traditional Mortgages Often Don't Fit
Flip properties are frequently in poor condition, purchased at auction, or need to close quickly, all of which make traditional bank financing difficult or impossible within the required timeline. Short term private financing is designed to fill this gap.
How Short Term Flip Loans Work
These loans typically have terms of six months to two years, higher rates than conventional mortgages, and are priced based on the property's value and your exit strategy rather than solely your personal income. Interest is sometimes structured to be paid at the end of the term rather than monthly.
Financing the Renovation Costs
Some private lenders will finance a portion of the renovation budget in addition to the purchase price, releasing renovation funds in draws similar to a construction loan. This can reduce how much of your own cash you need to put into the project upfront.
Planning Your Exit Strategy
Before taking on flip financing, you need a clear plan for how the loan gets repaid, whether that is selling the renovated property or refinancing into a conventional mortgage. Lenders will want to see this exit plan as part of the approval process.
- Sale of the renovated property
- Refinance into long term financing
- Realistic timeline matching the loan term
Costs to Factor Into Your Numbers
Beyond the loan itself, factor in land transfer tax, legal fees, renovation costs, carrying costs during the hold period, and selling costs like commission when the property sells. Flip margins can shrink quickly if these costs are underestimated.
Frequently asked questions
- Do I need a bigger down payment for this type of property?
- In most cases yes, since lenders view these properties as carrying more risk than a standard owner-occupied home. The exact amount depends on the property type, the lender, and your overall financial picture, so it is worth getting a clear answer before you start shopping.
- Can I use projected rental income before I have a tenant?
- Some lenders will accept a market rent appraisal or lease commitment for this, while others want to see an existing lease in place. Rules vary quite a bit between lenders, which is one reason it helps to work with a broker who can compare options.
- How long does approval usually take?
- Timelines vary based on the complexity of the file and whether extra documentation like appraisals or building permits are needed. Starting the conversation early, before you are under a tight closing deadline, generally leads to a smoother process.