Flip Homes with Little Money Down

09/30/2021

It’s no secret that flipping homes is one of the best ways to make big money fast. The big secret is how to fund your projects with the least amount out of pocket.  
The answer is found in government backed home loans. These loans offer little to no money down options and can be used to:

·       Buy a fixer and add additional units
·       Buy Land and build ground up construction
·       Buy a fixer upper and renovate
·       Buy a duplex, triplex or fourplex

These Government guaranteed home loans are administered by the Federal Housing Administration (FHA), the Department of Veteran Affairs (VA), and the Department of Agriculture (USDA).

These loans have a lower risk for the lender because of the government guarantee. In the event of a borrower default, the government has guaranteed to pay up to 25% of the original loan amount. As a result, they offer lower down payments (in some cases its even $0 down), can be used with borrowers with less than perfect credit and have lower interest rates.
Federal Housing Administration (FHA) Home Loans

These loans are perfect for applicants who are entering the real estate market for the first time or have not owned a home in the previous 3 years unless they have been affected by a natural disaster or are moving 100 miles from the current residence. In that case, there are special provisions.

To apply for an FHA home loan, the applicant is required to have a steady employment history of at least two years. Additionally, applicants must contribute a down payment of 0.5%-3.5% of the purchase price. For new construction, renovation, or an additional dwelling (also known as an ADU); the loan amount is based on the final completed value.  
FHA loans are available to both citizens and green card holders and can be used for up to 4 units. The borrower must occupy one unit as their primary residence.

Department of Veteran Affairs (VA) Home Loans

Unlike FHA loans, VA Home loans are more exclusive to a specific type of applicant. This loan is meant for Veterans, Active-Duty Service Members, and eligible spouses who meet the VA’s criteria. These types of loans offer some of the best benefits out of any home loan available, making the dream of homeownership more attainable for current and former members of the military.

Benefits from taking out this type of home loan include $0 money down (up to $5 million), lower monthly costs, no mortgage insurance premiums, and lower interest rates. In addition to these benefits, these loans do not have a penalty for borrowers who pay off their homes early. All that is required to enjoy these benefits is that the applicant meets all property, income, credit score, and service eligibility requirements.

These requirements include that the applicant serves at least 90 consecutive days in active duty while in wartimes, and 180 days during peacetimes. Members of the National Guard and reserves must serve at least six years. Once the service requirements are met, the applicant will have to make sure that they meet all other eligibility requirements as outlined by the VA.  

Like the FHA loan, these loans can be used for up to 4 units, but the borrower must occupy one of the units upon the closing. However, there are no restrictions on the duration of occupancy and the borrower can rent all the units out and purchase another home if they have a change of duty station.

The U.S. Department of Agriculture (USDA) Home Loans

Home loans that are administered by the USDA are also exclusive to a specific type of applicant. USDA home loans are for lower-income families whose income is either at or below the low-income limit for their county. The applicant must also be purchasing a modest single-family home in a rural development community (the census population must be less than 10,000).

Eligibility for the home loans requires that the applicant have a rental history of at least 12 months of making payments on time and a credit score of at least 640. However, some lenders will accept even lower scores.

This loan type can be used to flip a home but cannot be used to buy a duplex, triplex or fourplex.

Conclusion

Building your dream home doesn’t have to cost an arm and a leg. With the assistance provided with government home loans, you can construct your dream home with little or no money down. Changing Latitudes can help you find the perfect space and design it to your needs. Your government home loan can be used to finance it.

Phil Georgiades is the CLS for VA Home Loan Centers, a government-sponsored brokerage that specializes in VA home loans. He has been practicing real estate for 22 years. To learn more about our programs or to apply for a VA loan, click here.