Flipping a home can take anywhere from 6 months to 2 years. This means you will want a mortgage option that comes with the least amount of up-front costs and the lowest investment property rates in the short-term.
Many mortgage lenders will advise you to opt for an adjustable rate mortgage (ARM). ARMs offer an interest rate that is almost 1% lower than fixed rate mortgages, for a set period of 3, 5, or 7 years. There’s not much reason to worry about how the rate will be affected (adjusted) later as you will be selling the home before you reach this deadline.
Should I consider an adjustable rate mortgage?
Probably not. It’s actually more important that you go with the investment property loan that offers the fewest initial costs, and this may mean paying the higher interest rate on a fixed rate mortgage. The higher interest rate is usually more than offset by the fact that you can opt for no or low closing costs and other fee concessions. Remember, you’ll only be paying this interest rate for the amount of time it takes you to sell the home, which may be only a year.
The money you save in initial costs can be held back for emergencies (such as having to hold the home longer than you expect) or invested into fixing the home up and making it more valuable. This equals a larger profit once you find a buyer and, again, really offsets the extra percentage you pay in interest.
In the end, weigh your options carefully, but keep in mind that the general best practice for flipping a home is to go with the mortgage option that offers the lowest initial cost to you.
Historically low mortgage rates and excess market inventory makes it a prime time to buy low and make a positive cash flow investment. We have many programs available for purchasing an investment property.