A Fix and Flip Loan, also referred to as a hard money or bridge loan, is a specialized form of asset-based financing wherein a borrower secures funds based on the value of a real estate parcel.
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Fix and Flip loans typically carry higher interest rates compared to conventional commercial or residential property loans and are rarely extended by commercial banks or other deposit institutions. Similar to a bridge loan, hard money shares lending criteria and costs with borrowers.
The primary distinction lies in a bridge loan often being associated with a commercial or investment property in transition, not yet eligible for traditional financing. On the other hand, hard money encompasses not only an asset-based loan with a high interest rate but also addresses distressed financial situations, such as mortgage arrears or ongoing bankruptcy and foreclosure proceedings.
Many Fix and Flip mortgages are facilitated by private investors, often in local areas. The borrower’s credit score is typically not a decisive factor, as the loan is secured by the value of the collateral property. Usually, 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, providing added security in the event of borrower non-payment and potential foreclosure on the property.
