When you purchase a property for the purpose of fixing it up and reselling it, it is a business transaction and therefore needs a commercial loan. I do loans for people who want to buy a house, fix it up and then retain it as a rental property.
Cash flow is the #1 thing that prevents more people from becoming property flippers. The most ideal situation, of course, would be to buy a house with cash then use cash to fix it up then sell it for a profit!
Second best is having a combination of cash and a line of credit. Simplest is if you have equity in your primary residence and get a HELOC (Home Equity Line of Credit). There are some lenders out there who will give a home equity line of credit up to the full value of your primary residence (I’m not one of them but I’ve heard advertisements for this).
If you can’t get enough cash from your home’s equity to complete the project then a commercial line of credit would be the most nearly perfect way to go. However, it may be difficult (if not impossible) to get that line of credit. If you have high current income, a great credit score, little other debt, and experience in flipping then you are a perfect candidate for a commercial line of credit. Generally the more credentials you have the better the terms you can get. If you have few credentials, expect to pay a high rate and fees. There are “private money people” who specialize in lending to flippers but they charge very high rates.
Do consider this: your line of credit could be a personal friend, family member or contact. For many people the rates they get in a savings or money market account are relatively low. You may be able to offer a better rate to people with substantial savings and get an individual you know to invest in you and your business. Check with people within your sphere of influence to see if you can find someone to lend you extra funds.
Basically if you are flipping a home, it is a business transaction and the basic home mortgages offered by banks and mortgage lenders are not available. If you plan to make flipping a continuing source of income then you should work toward obtaining the right lines of credit by treating your business like a business. There are professionals, including lawyers and accountants and business consultants whom you can turn to for more technical advice as I am not qualified in any of these fields.
When you purchase an investment property that you intend to retain, then that situation is conforming (to Fannie Mae and Freddie Mac) and you can get a regular fixed rate mortgage and even rehab funds if the property is eligible. If this is your situation then Renee Duval should be your mortgage coach!