LOAN PROGRAMS
ABOUT
FIX & FLIP
If you've watched any home improvement shows, or if you're addicted to HGTV like most Americans, you're probably familiar with the term "fix & flip".
But just in case you're not, here's a brief description: fix & flip is the process of acquiring a property, fixing it up, and then selling it—or flipping it—at a significant price increase over the original investment.
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Fix & flip loans fund the purchase of a property, as well as the labor and materials associated with rehabbing it.
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Fix & flip loans are available for residential properties ranging from one (single-family home) to four units.
A wide range of lenders offer fix & flip loans, and their borrower requirements vary. In general, borrowers with previous fix & flip experience get better terms and rates.
Fix & flip loans are short-term and have a higher interest rate than a mortgage.
Borrowers usually pay off fix & flip loans with the proceeds from the property's sale.
In rare cases, some borrowers choose to hold onto their rehabbed properties as rentals. In that case, borrowers usually obtain a long-term, fixed-rate loan.
WHAT IS A FIX & FLIP LOAN?
10 MUST-KNOW FINANCE TERMS
1.
Amortization
The process of paying the principal and interest on a loan through regularly scheduled installments.
2.
Balloon payment
A loan that involves small payments for a certain period of time and one large payment for the remaining principal balance, due at a time specified in the contract.
3.
Basis points (bps)
1/100th of 1% (0.01%), typically stated as a number of basis points over an index rate.
4.
Loan-to-value (LTV)
The ratio between the loan amount and the value of the property. The ratio is commonly expressed to a potential borrower as the percentage of value a lender is willing to finance.
5.
Lock-out period
A period of time after loan closing during which a borrower cannot prepay the loan.
6.
Non-conforming loan
A mortgage loan that does not conform to regulatory limits such as loan amount, loan-to-value ratio, and other characteristics.
7.
Recourse
A loan for which the borrower is personally liable for payment if the borrower defaults.
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8.
PITI
Principal, interest, taxes and insurance, the four components of a mortgage payment.
9.
Prepayment penalty
A penalty sometimes charged to a borrower who makes a prepayment.
10.
Replacement reserves
Monthly deposits that a lender may require a borrower to place in an account for future capital improvements of major building systems; i.e., HVAC, parking lot, carpets, roof, etc.