A Fix and Flip Loan, also recognized as a hard money or bridge loan, is a specialized form of asset-based loan financing where a borrower secures funds based on the value of a specific real estate parcel.
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Fix and Flip loans typically come with higher interest rates compared to traditional commercial or residential property loans and are seldom offered by commercial banks or deposit institutions. Hard money shares similarities with a bridge loan, encompassing similar lending criteria and costs to borrowers.
The primary distinction lies in the fact that a bridge loan often pertains to a commercial or investment property in transition, not yet eligible for conventional financing. On the other hand, hard money not only involves an asset-based loan with a high interest rate but may also be associated with distressed financial situations, such as mortgage arrears, bankruptcy, or ongoing foreclosure proceedings.
Many Fix and Flip mortgages are extended by private investors, typically within their local communities. The borrower’s credit score is usually of lesser significance, as the loan is secured by the value of the property serving as collateral. Typically, the maximum loan-to-value ratio ranges from 65% to 70%. For instance, if a property is valued at $100,000, the lender would advance $65,000 to $70,000 against it. This conservative LTV serves as an additional layer of security for the lender, especially in scenarios where the borrower fails to make payments, potentially leading to foreclosure on the property.
