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id="ulink_2b898762-5708-502f-86f9-4621b7e2dd50">Small, local banks and credit unions often run loan specials trying to lure you into doing all your banking with them. They may offer low-rate loans regardless of whether you open a checking or savings account with them. Check your local newspaper for ads, call around to four or five banks in the area to check out their loan offerings, or check with your current bank or credit union, which may offer an even better deal because you already have an account there.

      

If you have the choice, obtain your loan from a lender that doesn’t sell its loans. Some smaller banks and mortgage brokers sell to larger, out-of-state banks, which can foul up the handling of your escrow account (the account from which the lender pays your taxes and insurance), resulting in unpaid property taxes and insurance.

      Expanding your search on the Internet

      You’ve probably seen those commercials in which a couple goes online to submit a request for quotes from various lenders. The lenders descend on the house like a flock of fawning suitors and grovel to win the couple’s favor. Funny, yes, but realistic? Not quite. You still need to perform your due diligence by checking the numbers, as I explain earlier in this chapter.

      

I recommend that you stay close to home when borrowing money to finance your flip, especially when you’re first starting out. Local lenders are typically more motivated and capable of servicing your loan, and they can work with you more effectively if something goes wrong.

      Borrowing for purchase and renovations with a renovation loan

      Fannie Mae and the Federal Housing Authority (FHA) offer home renovation mortgage programs that enable qualified buyers to borrow an amount equal to what the property is expected to be worth after repairs and renovations. For example, if you can purchase a property for $90,000 and sell it for $120,000, you can borrow up to $120,000 to purchase the property and pay for the repairs and renovations.

      To take advantage of a home renovation mortgage, you find a property to flip and then do a walk-through with your contractor (see Chapter 10) and come up with a list of repairs and renovations and their total estimated cost. You present the lender with the details, they order an appraisal, and if the appraised value of the property is greater than or equal to your total (purchase price plus cost of renovations) you get the loan, assuming you’re deemed creditworthy.

You use a portion of the loan to purchase the property, and the lender holds the rest of the money. For each repair or renovation, you obtain an estimate from a reputable contractor and then request a draw (a portion of the loan balance that the lender is holding) to be paid to the contractor. After the work is completed, a final inspection is conducted to ensure that all repairs have been made. Typically, you’re given about six months to complete the repairs and renovations.

      Fannie Mae offers a home renovation mortgage that’s open to real estate investors. The FHA 203K renovation loan, on the other hand, is made available only for the purchase and renovation of an owner-occupied home; that is, you must live in the property for a full 12 months before selling it. You must apply for an FHA 203K loan through an FHA-approved lender. If this option is something you want to consider, discuss it with your mortgage broker.

Part 2

      House Hunting with an Eye for Flipping

IN THIS PART …

      Find and cultivate your farm area — a great neighborhood with plenty of good opportunities for flipping houses.

      Discover dontwanners in your farm area — properties that are neglected because the owners don’t want them and are probably eager to sell.

      Read foreclosure notices and notices of default (NODs) to find properties that you may be able to pick up at bargain prices.

      Pick your point of entry in the foreclosure process: pre-foreclosure, foreclosure auction, or post-foreclosure (properties the banks repossess).

      Avoid the most common and costly mistake novices make at foreclosure auctions. (This tip alone may save you more than $100,000!)

      Capitalize on bargains in special markets, including divorce, bankruptcy, and probate.

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