How Does a Fix and Flip Loan Work?

When a property investor spots a promising fixer-upper, conventional financing does not generally work as a solution. Banks shy away from properties needing major repairs, and the lengthy approval process for a mortgage means investors often miss out on the best deals. This is where our fix and flip loans come in—they’re specifically designed to help investors purchase distressed properties, fund renovations, and try to resell for a profit.

Unlike traditional mortgages that might stretch 15 or 30 years, fix and flip loans typically run just 12 to 18 months and follow a completely different set of rules. Understanding how these loans work can help you determine if they’re the right tool for your next investment project.

Our loans are Interest Only 12 month term with extensions up to 18 months.

The Basic Structure of Fix and Flip Loans

Fix and flip loans are designed to cover both the purchase of a property and the renovation itself. This allows borrowers to fund their projects without having to piece together multiple credit sources or drain their savings to pay for improvements.

Purchase Funding

The purchase portion of a fix and flip loan typically can cover up to 80% to 90% of the property’s current value or purchase price (whichever is lower). This means if you’re buying a distressed property for $200,000, your loan amount will be somewhere between $160,000 and $180,000. You’ll need to provide the other $30,000 to $50,000 in the form of a down payment, which protects the lender’s investment and ensures you have that vested financial interest in the project.

We do not require assets or sourcing of your down payment for our fix and flip loans.

Renovation Funding

The renovation portion of the loan gets handled differently than the purchase funds. Instead of receiving all the money upfront, renovation funds are typically held in escrow and released in stages as work progresses. If your renovation budget is $100,000, you might receive the money in four or five draws of $20,000 to $25,000 each, timed to coincide with major project milestones.

How the Loan Process Works

There’s a different process for getting approved for a fix and flip loan than for qualifying for a traditional mortgage. The biggest difference is that lenders focus less on your personal income and more on the project’s potential profitability.

We require that one of the Guarantors on the loan have at least a 680 mid credit score and if their are others, all must have a 600+ credit score reporting on all credit bureaus.

Initial Application and Property Assessment

The process starts with submitting details about both you and the target property. Lenders want to see the purchase price, estimated after-repair value (ARV), and your detailed renovation plan. They’ll order an appraisal that looks at both the property’s current condition and its potential value after improvements.

Renovation Plan Review

Your renovation plan often needs to include more than just a bottom-line number. Lenders typically want to see a detailed scope of work, timeline, and budget breakdown. They’ll review contractor bids and compare your estimates against typical costs for similar projects in the area. This helps ensure the renovation budget is realistic and the project has a good chance of success.

The Draw Schedule

Once approved, you’ll establish a draw schedule that outlines when you can access renovation funds. A typical schedule might look like this:

1. First draw after demolition and initial repairs
2. Second draw after rough-in work (electrical, plumbing, HVAC)
3. Third draw after drywall and cabinets
4. Final draw after completing finish work and passing inspections

Before releasing each draw, the lender usually requires photos of completed work and may send an inspector to verify the project’s progress. This process protects both you and the lender by ensuring work meets quality standards and stays on budget.

Understanding Loan Costs

Fix and flip loans have different costs than traditional mortgages and understanding these expenses will help you budget accurately for your project.

Interest Rates and Points

Interest rates on fix and flip loans typically run higher than conventional mortgages, our rates range from 9.99% (5+ Flips/Rehabs) to 10.99% for those with little to NO experience in the last 36 months. Lenders also can charge “points,” where each point equals 1% of the loan amount, as an upfront fee. For example, on a $250,000 loan with two points, you’d pay $5,000 in points at closing.

We charge 1.5% to 2% for Lender Points, we do not have a Broker Fee because we are a Direct Lender.

Additional Fees

Beyond interest and points, fix and flip loans might also include:

• Origination fees
• Draw inspection fees ( Ours $250 Inspection Fee + $15 for a direct wire to your account, for each draw request)
• Extension fees if you need more time
• Early payoff fees in some cases, with there is None – we do require at least 3 interest only payments be made.

Experienced flippers factor these fees into their initial project analysis, often adding an extra 2-3% to their estimated loan costs to cover these additional expenses. This conservative approach helps ensure their profit calculations remain realistic even when extra fees come into play.

Loan Repayment Structure

Fix and flip loans use a different repayment structure than a traditional mortgage. Understanding these differences helps you manage cash flow throughout your project.

Monthly Payments

Our fix and flip loans require monthly interest-only payments on the funds you’ve drawn. This means your payments start relatively small and increase as you draw more renovation funds.

Exit Strategy

Fix and flip loans are designed to be short-term, with the entire principal due when you sell the property or reach the end of the loan term. Most flippers plan to sell their renovated property well before the loan matures, using the sale proceeds to repay the loan. If you can’t sell in time, you’ll need either an extension (if the lender offers one) or you’ll need to refinance into a different loan type.

We can provide a DSCR long term loan for your property if you choose to retain the property as a rental.

Qualification Requirements

While fix and flip lenders care less about personal income than traditional mortgage lenders, they still have specific qualification requirements.

Credit and Experience

For us, we look for credit scores of at least 680, though requirements do vary. Some lenders also consider your real estate investment experience, especially for larger loans or more complex projects. New investors might need to demonstrate relevant experience in construction, real estate, or project management.

We welcome new flippers with little to no experience.

Down Payment and Reserves

Beyond the down payment for purchase, lenders typically want to see cash reserves to cover several months of loan payments and potential cost overruns. Having these reserves shows you can handle unexpected expenses without derailing the project.

We DO NOT require you to prove assets or liquid reserves for our Fix and Flip Program.

Making Fix and Flip Loans Work for You

Fix and flip loans provide specialized financing that aligns with the unique needs of property renovation projects. While they carry higher costs than traditional mortgages, their structure and flexibility can make them valuable tools for real estate investors. Success with these loans requires careful project planning, realistic budgeting, and thorough understanding of the renovation process.Ready to explore fix and flip loan options for your next project? Get started today.