How to Use Gap Funding for Your Flips
Don’t walk into a loan without a plan – use gap funding for flips!
During a time when lenders are offering less money up-front for investment deals, you might need more money to fill in the gaps on your fix-and-flip projects.
Here are a few phases where you might need gap funding on your project.
Down Payments
Hard money lenders require at least 10% as a down payment. This is a very common use for gap funding.
If you use gap funding for your down payment, you’ll need to find out right away whether or not your hard money lender will accept a secured gap loan on the property.
Construction Costs
Another way to use gap funding for flips is for construction costs – rehab, repair, or anything necessary to bring the house up to the ARV and onto the market. These expenses can rack up fast, and they may not be completely covered by the main loan for the flip.
Carry Costs
Some investors will only use gap funding for the carry costs during their flip.
The lender will pay the mortgage payment, the insurance, or whatever other monthly costs are required during the project. Having a gap lender for carry costs can smooth out a fix-and-flip experience.
The Reach of Gap Funding for Flips
It’s possible to coordinate with your gap lenders to cover all three of these additional costs. This is a common way investors successfully finish fix-and-flips with zero money down.
You can use gap funding however you need, as long as both the hard money lender and the gap lender agree that the loan fits their criteria.
Not all hard money lenders allow you to secure your gap loan with a lien on the property you’re closing on. And not all gap lenders will loan to you unsecured.
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