Traditional MortgagesTraditional mortgages may be the type of loan that new rehab investors are the most familiar with. The lower interest rate of traditional mortgages may seem inviting at first glance. However, banks will almost never approve a loan on a house that needs substantial work. If the house only needs very minor cosmetic work then in some cases they may approve a loan; however due to their very slow process and all the red tape it will almost never be practical. In fact that is the fastest way to lose out on the offer and ruin your reputation for being able to close fast as most likely you will be kicked out of escrow for not being able to perform/fund on time. Remember the selling agent will almost always have back up offers ready to close all cash or very quick escrows. Also, many conventional loans may justify the lower interest rate by charging significant prepayment penalties for borrowers who pay off the loan early. The penalties alone may negate the benefit of a low interest rate. Regular mortgages are almost never the best choice for investors who want to purchase a home and pay off the loan in a short period of time.
Fix-and-Flip FinancingLenders like Aztec Financial offer funding for real estate investors who want to buy a property, fix it and flip it in less than a year. These fix and flip loans tend to be less like a traditional mortgage because they require a different application process. Some of the differences include:
- no income verification
- no minimum down payments
- no upfront appraisal fee