A Fix and Flip Loan, alternatively referred to as a hard money or bridge loan, is a specialized form of asset-based financing where a borrower acquires funds secured by the value of a real estate parcel.
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These loans typically come with higher interest rates compared to conventional commercial or residential property loans and are seldom offered by commercial banks or other deposit institutions. Hard money shares similarities with a bridge loan, encompassing similar lending criteria and costs for borrowers.
The primary distinction lies in the fact that a bridge loan often pertains to a commercial or investment property undergoing transition, not yet eligible for traditional financing. On the other hand, hard money not only denotes an asset-based loan with a high interest rate but may also involve a distressed financial situation, such as arrears on an existing mortgage, bankruptcy, or foreclosure proceedings.
Many Fix and Flip mortgages originate from private investors, often within local areas. The borrower’s credit score is typically of lesser importance, as the loan is secured by the value of the property used as collateral. Typically, the maximum loan-to-value ratio stands at 65-70%. In other words, if the property is valued at $100,000, the lender would advance $65,000-70,000, providing an additional layer of security in case of borrower default and potential foreclosure on the property.
