Fix and Flip Loans
Fix and flip loans are short-term financing products built for real estate investors who purchase distressed or undervalued properties, complete renovations, and resell them for a profit. These loans typically cover both the acquisition price and a portion of the planned rehab costs. Lenders evaluate deals based on the property's After Repair Value (ARV), the borrower's experience, and the strength of the exit strategy. Terms commonly range from 6 to 18 months, with interest-only payments and rehab funds disbursed through a structured draw schedule.
Quick Answer
- Fix and flip loans are short-term financing products designed for investors who buy, renovate, and resell properties.
- Loan amounts are typically based on a percentage of the property's After Repair Value (ARV), commonly capped at 70%–75% of ARV.
- Interest rates depend on borrower experience, leverage and underwriting.
- Terms generally span 6 to 18 months with interest-only payments.
- Rehab funds are usually disbursed through a draw schedule as work is completed and verified.
- A clear exit strategy — selling or refinancing — is typically required by lenders.
What Is a Fix and Flip Loan?
A fix and flip loan is a type of short-term real estate financing specifically tailored for investors who plan to purchase a property, make improvements, and sell it for a profit. Closing depends on underwriting, property review, title work and complete documentation.
These loans are typically offered by private lenders, hard money lenders, and specialty finance companies rather than traditional banks. The loan structure usually includes funds for both the acquisition of the property and a portion \u2014 or sometimes all \u2014 of the planned renovation costs.
How Fix and Flip Loans Are Structured
- •Loan-to-Cost (LTC) typically ranges from 85% to 90% of total project costs
- •Maximum loan amount is commonly capped at 70%\u201375% of the After Repair Value (ARV)
- •Interest-only monthly payments are standard during the loan term
- •Terms generally range from 6 to 18 months
- •Rehab funds are held in escrow and released through a draw schedule
- •Origination fees typically range from 1 to 3 points
ARV, LTC, and LTV Explained
After Repair Value (ARV) is the estimated market value of the property after all planned renovations are completed. Lenders use ARV as a ceiling to cap total loan exposure, typically limiting the total loan amount to 70%\u201375% of the projected ARV. A well-supported ARV backed by recent comparable sales is critical for loan approval.
Loan-to-Cost (LTC) measures the loan amount as a percentage of the total project cost, which includes both the purchase price and the rehab budget. An LTC of 90% means the lender finances 90% of total costs and the borrower contributes the remaining 10%.
Loan-to-Value (LTV) compares the loan amount to the current as-is value of the property. In fix and flip lending, LTV is typically used alongside ARV and LTC to ensure the deal meets multiple risk thresholds. The interplay of all three metrics determines the final loan amount.
How Rehab Draws Work
Request a Draw
After completing a phase of renovation work, the borrower submits a draw request to the lender with documentation of completed items.
Inspector Visits the Property
The lender or a third-party inspector visits the property to verify the work has been completed as described in the draw request.
Lender Releases Funds
Once the inspection is approved, the lender disburses the corresponding portion of rehab funds to the borrower or directly to the contractor.
Repeat Until Complete
The process repeats for each phase of renovation until all budgeted rehab work is finished and all draws have been released.
What Lenders Review
- •Executed purchase contract or proof of ownership
- •Detailed rehab scope of work and itemized budget
- •ARV supported by recent comparable sales
- •Clean title report with no outstanding liens or encumbrances
- •Borrower experience and track record with similar projects
- •Credit score and personal financial statement
- •Proof of liquidity for down payment, closing costs, and reserves
- •Clear exit plan \u2014 sale or refinance strategy
Common Deal Killers
- ✗Weak or outdated comparable sales that don't support the projected ARV
- ✗Unrealistic ARV expectations relative to the neighborhood
- ✗No clear exit plan or backup strategy
- ✗Thin liquidity or insufficient cash reserves
- ✗Poor contractor documentation or missing scope of work
- ✗Title issues such as outstanding liens, judgments, or unclear ownership
Example Fix and Flip Deal
Illustrative only. Actual loan structure depends on the file.
Browse Fix and Flip Loans by State
Frequently Asked Questions
Key Takeaways
- ✓Fix and flip loans provide short-term financing for property acquisition and renovation.
- ✓Loan amounts are typically based on a percentage of the property’s After Repair Value (ARV).
- ✓Interest rates, terms, and qualification requirements vary by lender and borrower profile.
- ✓Rehab funds are usually disbursed through a draw schedule as work progresses.
- ✓Having a clear exit strategy — selling or refinancing — is essential before taking on a flip loan.
- ✓Availability and terms may differ by state and local market conditions.
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