Traditional vs. Hard Money Loans: Which One is Right for Your Flip?

When flipping a house, choosing the right type of financing is critical. Investors typically have two main options: traditional loans from banks and credit unions, or hard money loans from private lenders. Each comes with its own set of advantages and disadvantages.

Traditional Loans generally offer lower interest rates, typically around 4-7%, and have longer repayment terms ranging from 15-30 years. However, banks have strict lending criteria. To qualify, you typically need strong credit scores (often 680 or higher), proof of stable income, and a low debt-to-income ratio. Additionally, the approval process can be lengthy, often taking between 30-45 days. This timeline can make traditional loans challenging if you need to act quickly to secure a property.

Hard Money Loans, on the other hand, are specifically designed for real estate investors looking to flip properties. They usually come with higher interest rates ranging from 8-15% and shorter terms of 6-18 months. The main advantage of hard money loans is speed; approvals and fundings can happen in days rather than weeks. Hard money lenders also focus less on personal financial credentials and more on the property's after-repair value (ARV). They’re ideal for investors with less-than-perfect credit or those needing to close quickly.

Ultimately, if your credit is strong and you're able to wait for traditional financing, you'll likely save money with a conventional loan. But if speed and flexibility are your priorities, a hard money loan might be the better choice.