Can You Flip a House with a Conventional Loan

If you’re a savvy borrower looking to make some extra income by fixing and flipping a house, you may be wondering, “Can you flip a house with a conventional loan?” The answer is “yes,” but you’ll have to meet more stringent borrower requirements than you would if you purchase a home with the intent of residing in it yourself.

Professional house flippers rarely rely on conventional mortgage loans to fix and flip houses, but if you see flipping a home as a potential lucrative side investment, have the funds to do it, and also have a great credit history, you can certainly take advantage of the lower interest rates of conventional lending to fix and flip.

Funds you’ll need on hand to flip a house with a conventional loan

House flipping can offer you the opportunity for a solid return on investment, but you’ll need to have cash on hand to manage the transaction even if you plan to borrow to purchase the house. Before you consider fixing and flipping, make sure you have cash reserves to cover the following:

• Renovations to the house you’re purchasing
• Funds to cover property taxes, homeowners’ insurance, and utilities for the house until you close a sale
• Money to cover short-term capital gains taxes (if you flip the house in a year or less), which could run anywhere from 10 to 37% depending on your income bracket

Borrower requirements you’ll need to meet

Assuming you have sufficient cash reserves to meet the above financial obligations, you’ll still need to meet some other stringent requirements in order to flip a house with a conventional loan. We understand fixing and flipping is a riskier investment than purchasing a home for your own use. As a result, you’ll need to be an experienced, creditworthy, and well-funded borrower:

• Be prepared for a down payment of at least 20% of the home’s value, as most conventional lenders will finance no more than 80% of an investment property’s purchase.
• Make sure you have a solid credit history and a credit score of at least 650. Lenders will not want to see any blots on your credit report.
• Don’t aim to purchase a house with major safety or occupancy hazards. It will be much harder to get a conventional loan for a house that isn’t “move-in ready.”
• You can buy a house that has a lot of cosmetic issues and use a conventional loan. However, if the house is unsafe to live in it will not qualify for conventional financing.
• Know that you’re more likely to qualify for a conventional loan if you already have significant equity in another piece of property like the home in which you live.
• Be certain you can turn a profit on the fix-and-flip home you’ve selected. A general rule of thumb among experienced fix-and-flip investors is that you should pay no more than 70% of the anticipated post-renovation value of the home. Keep in mind the renovation and upgrade costs you’ll need to cover, too.

If you decide to pursue a conventional loan to fix and flip a house, remember that closing on a conventional loan typically takes at least 20 days. Reach out to an OVM Financial loan expert for advice on loans for real estate investment as well as for help on other topics like getting a conventional loan with a foreclosure on your record.