Everything You Need to Know About Fix and Flip Loans in Texas

Texas is one of the hottest real estate markets in the country right now With its diverse economy, business-friendly environment, and growing population, it’s no wonder that real estate investors are flocking to the Lone Star State. One popular real estate investing strategy that is booming in Texas is fix and flip.

A fix and flip involves purchasing a property that needs renovations, fixing it up, and then reselling it for a profit. With the right financing, investors can leverage fix and flip loans to fund these types of deals. Here’s everything you need to know about getting a fix and flip loan in Texas.

Overview of the Fix and Flip Loan Market in Texas

Texas has a robust market for fix and flip lending. According to HardMoneyHome.com, there are currently 50 different lenders offering fix and flip loans within the state Some of the most active lenders include Capstone Lending, CR Lending, Park Place Finance, and Kiavi.

The average fix and flip loan amount in Texas is $319564. Interest rates on these loans tend to be high compared to conventional mortgages averaging around 11.2%. However, fix and flip loans make up for their higher rates by offering faster closings, easier qualifications, and loan-to-value ratios up to 90% in some cases.

The typical fix and flip loan term in Texas is 28 months. This gives the investor enough time to purchase, renovate, and sell the property. Lenders also charge an average origination fee of 3.1% on these loans.

Fix and Flip Loan Requirements in Texas

While fix and flip loan requirements are less strict than conventional mortgages, there are still some boxes you need to check to qualify. Here are some of the typical requirements for Texas fix and flip loans:

• Loan-to-value ratio (LTV) – Most lenders offer up to 75-80% LTV on their loans. This means you’ll need to cover the remaining amount with a down payment.

• Borrower’s experience – Having successfully completed fix and flips in the past will make qualification easier. Some lenders may require 2-5 years of rehab experience.

• Exit strategy – You’ll need to provide an explanation for how you intend to repay the loan, either through selling or refinancing the property.

• Property evaluation – The lender will assess the property’s after-repair value to determine available equity.

• Down payment funds – Expect to document the source of your down payment, such as bank statements, investment accounts, etc.

As long as you meet these parameters and have a viable deal, you should qualify for fix and flip financing from a private lender in Texas.

Types of Fix and Flip Loans Available in Texas

There are a few different loan structures you can choose from when seeking fix and flip financing:

• Term loans – This is the most common type, featuring a set loan term (typically 6-36 months), monthly interest-only payments, and a balloon payment due at maturity.

• Lines of credit – The lender approves you for a certain amount which you can draw as needed to fund projects. You only pay interest on what you use.

• Hard money loans – Hard money comes from individual investors rather than institutions. They offer fast closings but charge higher rates.

• Bridge loans – Designed to bridge the gap between purchasing and selling a property. You repay it once you sell the project.

• 302 (FHA) loans – Insured by the FHA, these allow 90% financing or more but have stricter requirements.

The right loan type depends on factors like your timeline, experience level, and risk tolerance. Many lenders offer tailored solutions.

Finding the Best Fix and Flip Lender in Texas

With so many lenders to choose from, it can be difficult deciding which one to work with. Here are a few tips for picking the best fix and flip lender in Texas for your needs:

• Compare interest rates and fees – Even a 1% difference can add significant costs. Don’t just look at rates, factor in origination fees too.

• Check lending locations – Some lenders only operate in certain Texas metros. Ensure they provide financing where you’re investing.

• Ask about loan terms – Term length, LTV, and other terms vary between lenders. Find one whose offerings align with your deals.

• Read reviews – This can provide valuable insight into a lender’s customer service, rates, and overall reputation.

• Consider experience – More experienced lenders may have better industry connections and be able to close quickly.

• Evaluate specialties – Some lenders cater to certain project types like new builds, multi-units, etc.

Taking the time to weigh all of these factors will help you select a lender that offers the right rates, terms, and services to meet your unique needs and support your success.

Step-By-Step Process for Getting a Fix and Flip Loan in Texas

If you’ve never obtained financing for a fix and flip project before, you may be wondering what the process entails. Here is a step-by-step overview:

1. Find a property and make an offer – Identifying a viable fix and flip deal is the very first step. Run the numbers to confirm the upfront costs, repair budget, and expected profit align with your goals.

2. Select a lender and apply – Once under contract, you can start contacting lenders and submitting applications. Provide details on the property, your planned renovations, and your financials.

3. Lender reviews and underwrites the deal – They will assess the after-repair value to establish available equity and conduct due diligence like appraisals, title searches, and underwriting.

4. Receive loan approval and issue fee(s) – The lender will inform you of your approval and collect any upfront fees. Rates and terms will also be finalized.

5. Close on the loan and purchase the property – Finally, you can close on the mortgage, take your funding, and acquire the property.

6. Complete renovations – Now the fun part starts! Oversee all needed repairs and improvements to maximize the home’s value.

7. Repay the loan and collect profits – Once sold, repay your fix and flip loan and enjoy your earnings!

It typically takes 1-2 weeks to get approved and another 1-2 weeks for closing. The faster the better, as you don’t want to lose the deal.

Two Example Fix and Flip Deals in Texas

To further illustrate how the financing works, let’s look at two real world examples of fix and flip loans recently issued in the Texas market:

Deal #1

Dwayne purchased a townhouse in McAllen for $250,000 that needed renovations before selling. He took out a loan from Rehabbers Funding Group for 55% of the purchase price ($137,500) at a 14% interest rate over 6 months. Dwayne had to pay a 4 point origination fee ($5,500) at closing and contribute the remaining 45% ($112,500) in cash.

After completing repairs, Dwayne sold the townhouse for $350,000. From the sales proceeds, he repaid the $137,500 loan balance, $9,625 in interest, the $5,500 fee, and his $112,500 downpayment. After costs, he netted $84,875 profit!

Deal #2

Hattie used a fix and flip loan from Uptown Funding Corporation to purchase a duplex in Euless for $380,000. She qualified for 65% LTV so she only had to put 35% ($133,000) as a down payment. The loan had an 18 month term at 9% interest and a 1% origination fee ($2,470).

Hattie repaired and sold the property for $475,000 when the loan matured. After repaying the loan balance ($247,000), downpayment ($133,000), interest ($33,345), and fees ($2,470), she earned $59,185 in gross profit.

Pros and Cons of Fix and Flip Loans

Like any financing product, fix and flip loans come with both advantages and drawbacks. Here are some of the key pros and cons to weigh when considering this option:

Pros

• Fast approvals and closings to act quickly on deals
• Higher LTVs and flexible guidelines increase purchasing power
• Interest-only payments keep out-of-pocket costs lower
• No prepayment penalties provide