How Does a Fix and Flip Loan Compare to a Traditional Mortgage?
Fix and flip loans differ significantly from traditional mortgages in several key aspects. Loan terms for fix and flip loans are much shorter, typically ranging from 6 to 18 months, whereas traditional mortgages are designed for long-term financing, with terms extending 15 to 30 years. The approval process for fix and flip loans is much faster, often taking 3 to 7 days, while conventional mortgage approvals can take 30 to 45 days due to extensive underwriting requirements.
Another major difference is interest rates. Fix and flip loans generally have higher interest rates, ranging from 8% to 14%, reflecting the short-term nature and higher risk for lenders. In contrast, traditional mortgages typically offer lower interest rates between 3% and 7% due to their longer duration and more stringent borrower qualifications. Additionally, fix and flip loans require larger down payments—typically 10% to 25%—compared to traditional mortgages, where borrowers can often secure financing with as little as 3% to 20% down.
The basis for loan approval also differs. Fix and flip lenders focus on the property's value after repairs (ARV) and project viability, whereas traditional mortgage lenders evaluate the borrower's credit history, income, and debt-to-income ratio. Because of this, fix and flip loans are better suited for real estate investors looking for short-term, high-return projects, while traditional mortgages are ideal for homebuyers or long-term rental property owners.
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