What Is a Fix and Flip Loan?
A fix and flip loan is short-term financing built for real estate investors. It covers the purchase price and renovation costs of a property you plan to fix up and sell for a profit.
These loans are designed to be fast. Most close in 7-14 days. Terms run 6-18 months - just long enough to buy the property, complete renovations, and sell it.
Here's how they differ from a regular mortgage: approval is based primarily on the property's after-repair value (ARV), not your personal income. A traditional mortgage asks, "Can you afford the monthly payment for 30 years?" A fix and flip loan asks, "Will this property be worth significantly more after the renovation?"
The core idea: A fix and flip loan is a short-term, asset-based loan that funds both the purchase and renovation of an investment property, with repayment expected from the sale of the finished property. Most lenders cap the total loan at 70-75% of the property's after-repair value.
Fix and flip loans go by several names. You'll hear them called hard money loans, bridge loans, rehab loans, or investor loans. The terms overlap, but they all describe the same basic product: short-term money to buy and fix a property. See our fix and flip loan programs for current rates and terms.
How Fix and Flip Loans Work
The process has more moving parts than a standard loan. Here's each step.
Step 1: Find the Deal
You identify a property that's undervalued - usually because it needs significant repairs. The key metric is the gap between the purchase price plus renovation costs and the after-repair value. That gap is your potential profit.
Step 2: Get Pre-Approved
You submit the deal to a lender with basic information: the property address, purchase price, estimated renovation budget, and your estimated ARV. The lender reviews the numbers and tells you what they'll fund.
Most lenders will cover:
- Up to 85-90% of the purchase price - you bring 10-15% as a down payment
- Up to 100% of renovation costs - released in draws as work is completed
- Total loan capped at 70-75% of ARV - this is the hard ceiling
Step 3: Close on the Property
Once approved, closing happens fast. Most fix and flip loans close in 7-14 business days. The purchase portion of the loan funds at closing, just like a regular home purchase.
Step 4: Renovate with Draws
This is where fix and flip loans differ the most from other financing. The renovation money doesn't come all at once. It's released in draws as you complete each phase of work.
Here's how draws work:
- You complete a phase of renovation (example: demo and framing)
- You request a draw from the lender
- The lender sends an inspector to verify the work is done
- Once verified, funds are released to you (or your contractor)
- You move to the next phase and repeat
Draw schedules vary by lender. Some split the rehab into 3-4 milestones. Others release funds after every inspection. The key point: you don't get the full renovation budget upfront. You earn it as you complete the work.
Pro Tip: Budget for out-of-pocket costs between draws. You'll often need to pay contractors before the next draw is released. Having 10-15% of the rehab budget in cash reserves prevents project delays.
Step 5: Sell (or Refinance)
Once renovations are complete, you either sell the property and pay off the loan from the sale proceeds, or refinance into a longer-term loan like a DSCR loan if you want to keep it as a rental.
What Fix and Flip Loans Actually Cost
Fix and flip loans cost more than a traditional mortgage. But they're designed for a 6-18 month hold, not 30 years. The higher rate over a short period can still result in strong profits if the deal math works.
| Cost Component | Typical Range | What It Means |
|---|---|---|
| Interest Rate | 8-14% | Annual rate on the loan balance. Interest-only payments during the project. |
| Origination Points | 1-3 points | Upfront fee. 1 point = 1% of the loan amount. Paid at closing. |
| Draw/Inspection Fees | $150-$500 per draw | Charged each time the lender inspects completed work and releases funds. |
| Closing Costs | 2-5% of loan | Title, appraisal, legal, and processing fees. Similar to any real estate closing. |
| Extension Fee | 0.5-1% per month | If the project runs past the original term. Avoid this by budgeting extra time. |
How This Compares to Other Real Estate Loans
| Criteria | Fix & Flip | DSCR Loan | Construction Loan | Conventional Mortgage |
|---|---|---|---|---|
| Interest Rate | 8-14% | 7-9% | 7-12% | 6-8% |
| Term | 6-18 months | 30 years | 12-24 months | 15-30 years |
| Funding Speed | 7-14 days | 2-4 weeks | 3-6 weeks | 30-45 days |
| Down Payment | 10-15% | 20-25% | 10-20% | 15-25% |
| Credit Score | 620+ | 660+ | 680+ | 680+ |
| Best For | Buy, fix, sell fast | Buy and hold rentals | Ground-up builds | Primary residence |
Key Takeaway
Fix and flip loans cost more per month than other real estate financing. But you're only paying that rate for 6-12 months. The total dollar cost on a typical flip is $10,000-$25,000 in financing charges. If the property generates $40,000-$80,000 in profit, the math works.
A Real Fix and Flip Deal Breakdown
Numbers tell the story better than descriptions. Here's what an actual flip deal looks like from start to finish.
The Property
- Purchase price: $200,000
- Renovation budget: $60,000
- After-repair value (ARV): $340,000
- Project timeline: 6 months
The Loan
- Loan amount (purchase): $180,000 (90% of purchase price)
- Loan amount (rehab): $60,000 (100% of rehab - released in draws)
- Total loan: $240,000 (70.6% of ARV - under the 75% cap)
- Down payment: $20,000 (10% of purchase price)
- Interest rate: 11%
- Origination: 2 points ($4,800)
The Costs
| Cost | Amount |
|---|---|
| Down payment | $20,000 |
| Origination (2 points) | $4,800 |
| Interest (6 months) | ~$13,200 |
| Closing costs (purchase + sale) | ~$12,000 |
| Holding costs (insurance, utilities, taxes) | ~$6,000 |
| Renovation | $60,000 |
| Total investment | ~$116,000 |
The Result
- Sale price: $340,000
- Minus loan payoff: -$240,000
- Minus all costs: -$36,000 (interest, points, closing, holding)
- Net profit: ~$44,000
- Cash invested: $20,000 (down payment)
- Return on cash: 220%
Reality check: Not every flip goes this smoothly. Renovation costs run over budget. Properties sit on the market longer than expected. Hidden issues appear during demo. Smart investors build a 10-15% contingency into their rehab budget and add 2-3 months to their timeline estimate. The deal should still make money even with overruns.
Who Qualifies for a Fix and Flip Loan?
Fix and flip lenders evaluate the deal and the borrower. Here's what most lenders look for.
The Borrower
- Credit score: 620+ minimum. 680+ gets the best rates.
- Cash reserves: Enough for the down payment (10-15% of purchase price) plus reserves to cover costs between draws.
- Experience: Not always required, but experienced flippers (3-5+ completed projects) get better terms - higher leverage, lower rates, and faster approvals.
- Entity: Most lenders require an LLC or corporation. They rarely lend to individuals for flips.
The Deal
- ARV support: The after-repair value must be supported by comparable sales in the area.
- Loan-to-ARV: Total loan (purchase + rehab) must stay at or below 70-75% of ARV.
- Scope of work: A clear renovation plan with itemized costs. Lenders want to see what you're doing and what it costs.
- Location: Most lenders focus on metropolitan areas with active resale markets. Rural properties are harder to finance.
- Property condition: The property must be structurally sound enough to renovate. Condemned buildings or major structural failures may not qualify.
First-Time Flipper? Here's What to Expect
You can get a fix and flip loan without prior experience. But your terms will reflect the added risk:
- Lower leverage: Expect 75-80% of purchase price funded instead of 90%
- Higher rates: 1-2% above what experienced flippers pay
- Smaller rehab budgets: Lenders may cap renovation funding until you prove you can manage a project
- More documentation: Detailed scope of work, contractor bids, and a clear exit plan
Pro Tip: If you're a first-time flipper, start with a smaller project - a cosmetic rehab (paint, flooring, kitchen/bath updates) on a property in a strong market. This builds your track record and gets you better terms on future deals. Lenders want to see that you can complete a project on time and on budget.
Exit Strategies: Sell the Flip or Keep It
Most investors plan to sell. But there's a second option that's become increasingly popular: the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat).
Strategy 1: Sell It (Traditional Flip)
This is the straightforward path. You renovate the property, list it, and sell it at the higher ARV. You pay off the fix and flip loan from the sale proceeds and keep the profit.
When to sell:
- The property is in a strong resale market with buyers competing for homes
- You want your cash back quickly to reinvest in the next deal
- The numbers are better as a flip than a rental (high ARV relative to rental income)
Strategy 2: Refinance into a DSCR Loan (Hold as Rental)
Instead of selling, you rent the property and refinance the fix and flip loan into a DSCR loan. DSCR loans qualify based on the rental income, not your personal income. If the rent covers the mortgage payment, you qualify.
When to hold:
- The property would generate strong rental income relative to its value
- You want to build a long-term portfolio of cash-flowing rentals
- The market is soft for selling but strong for renting
- You'd rather have monthly cash flow than a one-time profit
The BRRRR strategy works like this: You buy a $200,000 property, put $60,000 into renovations, and it's now worth $340,000. You refinance with a DSCR loan at 75% LTV ($255,000). That pays off your $240,000 fix and flip loan and puts $15,000 back in your pocket. You now own a rental property with little to no cash left in the deal.
Key Takeaway
Your exit strategy should be decided before you buy the property, not after. The best flippers underwrite every deal both ways - as a flip and as a rental - so they have options if the market shifts.
- Plan to sell? Make sure the ARV and local market support a profitable sale within your loan term.
- Plan to hold? Make sure the rental income covers a DSCR loan payment at 75% LTV.
- Plan for both? That's the smart play.
Frequently Asked Questions
What is a fix and flip loan?
A fix and flip loan is short-term financing for real estate investors who buy properties, renovate them, and sell them for a profit. The loan covers the purchase price and renovation costs. Terms are typically 6-18 months with interest rates between 8-14%. Approval is based on the property's after-repair value (ARV), not just the borrower's income.
How much does a fix and flip loan cost?
Expect 8-14% interest rates plus 1-3 origination points (1 point = 1% of the loan amount). On a $200,000 loan with a 12% rate and 2 points, you'd pay roughly $4,000 upfront in points and $2,000 per month in interest. Total financing cost on a 6-month project would be around $16,000.
What credit score do you need for a fix and flip loan?
Most lenders require a minimum credit score of 620-680. Some work with scores as low as 600 for experienced flippers. Higher credit scores get lower rates and higher leverage. But the deal itself - the ARV, location, and scope of work - matters more than credit alone.
How fast can you get a fix and flip loan?
Most fix and flip loans close in 7-14 business days. Some lenders can close in as few as 5 days for experienced investors. Compare that to a conventional mortgage at 30-45 days or an SBA loan at 60-90 days.
Do you need experience to get a fix and flip loan?
No. Most lenders fund first-time flippers. But terms are less favorable - lower leverage (75-80% instead of 90%), higher rates, and smaller rehab budgets. After 3-5 completed projects, most lenders offer significantly better terms.
What is ARV and why does it matter?
ARV stands for After-Repair Value - the estimated market value of the property after all renovations are complete. Lenders use ARV to cap how much they'll lend. Most cap the total loan at 70-75% of ARV. If a property's ARV is $300,000, the maximum total loan would be $210,000-$225,000. ARV is the most important number in any flip deal.
Can you convert a fix and flip loan into a rental loan?
Yes. This is the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat). After renovations are complete, you refinance into a DSCR loan based on the rental income. This lets you pull out your invested capital and keep the property as a cash-flowing rental. Many investors use fix and flip loans as the first step in building a rental portfolio.
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