A Fix and Flip loan is a short-term financing designed to cover the purchase price of a property in need of renovation and the cost of renovating it.
You typically repay the loan after the property is sold. It’s important to understand how the lender calculates the loan amount and how the funds are released, as these details can directly affect whether or not a Fix and Flip project is profitable.
A Fix and Flip loan covers the purchase price and the renovation costs, and is repaid upon sale
A Fix and Flip loan typically has two parts. The fix and flip lenders pay a portion of the purchase price when the deal closes, while the funds related to the renovation are held by the lender and released as the work progresses.
Payments are often interest-only or deferred for a period of time during the project, according to Experian. This can help keep monthly costs low while the property is being renovated. The remaining balance of the loan typically matures when you sell or refinance the property.
Fix and Flip loans typically focus more on the value of the property and the strength of the investment plan than on your business income. Our guide to Hard Money Loans for Flipping Homes explains the broader type of loan, while this article focuses specifically on the financing decisions that are important for people flipping homes.
Timing is also important, as interest continues to accrue. According to ATTOM, the typical flip project in the first quarter of 2026 took 165 days from purchase to resale. ATTOM also found that 61.1% of flipped homes were purchased with cash, meaning nearly two out of every five flip projects were done using financing.
ARV and Loan-to-Cost Determine How Much You Can Borrow
Two important numbers help lenders determine the size of a fix and flip loan. ARV, or After-Repair Value, is the estimated value of the property after renovations are complete. Loan-to-Cost, or LTC, is the percentage of the total project costs, including purchase and renovations, that the lender is willing to finance.
Many lenders use both limits and lend based on whichever produces the lower amount. So even if a property has a high ARV, if the purchase and renovation costs are too high, the deal may still not qualify for adequate financing.
You should also expect to put some of your own money into the project. Experian says borrowers may need a down payment of about 20% to 30% of the property’s current value, or ARV. Consider this range only as a general planning range, as the actual requirement will depend on the lender and the specific deal.
Before making an offer to purchase, research recent sales of renovated properties in the surrounding area and calculate your ARV. The lender will do their own appraisal, and their estimate may be more conservative than the numbers provided by the seller or contractor.
Renovation funds are released through a Draw, so you will need sufficient cash to proceed with the project.
After the deal is finalized, the renovation funds are typically held with the lender or title company. You submit a renovation budget and scope of work, complete a phase of the project, apply for a Draw, and then an inspector certifies the work completed so the lender releases the funds.
This process can create cash flow problems for those with little experience in Flipping. Contractors often require a down payment and regular payments, so you should have enough cash on hand to cover at least one or two phases of the renovation before you receive your first draw.
When comparing lenders, ask how long it typically takes from the time you request an inspection to receiving funds. The answer to this question can be more important to your project than simply comparing quoted interest rates.
The 70% Rule and ATTOM Data Show Why Margins on Flip Projects Can Be Narrow
Many investors use the 70% Rule as a primary way to screen potential deals. As Benzinga explains, this rule generally suggests not paying more than 70% of the ARV minus estimated repair costs to purchase the property. The remaining amount should then cover the costs of buying, maintaining, financing, and selling so you can calculate your true profit.
ATTOM data shows why having enough space in the deal is important. In the first quarter of 2026, a typical flip project generated $66,000 in gross profit and a gross return of 25.4%. These figures do not include renovation and other expenses; expenses that experienced flippers estimate can account for 20% to 33% of the ARV.
A hypothetical flip project shows how a few unexpected expenses can cut profits by a third
Marcus, a firefighter doing his second flip, finds a property that needs $60,000 in renovations. Recently renovated homes nearby sold for around $300,000, so he uses $300,000 as his ARV.
Using the 70% rule, his maximum purchase price would be $150,000: $210,000, or 70% of the ARV of $300,000, minus $60,000 in repairs.
Marcus purchased the property for $150,000. bringing the total project cost to $210,000. Suppose his lender finances 90% of this amount, or $189,000. Marcus pays the remaining amount, $21,000, plus closing costs.
He sells the property for $300,000, pays $24,000 in sales costs, and pays another $16,000 in financing and maintenance costs. His profit before taxes is $50,000.
Then the renovation costs are 20% more than originally budgeted, adding another $12,000 to the costs. It also takes two months longer to sell the property, resulting in another $5,000 in maintenance costs. His profit drops to $33,000.
The financing itself worked as expected, but the initial margin was not large enough to absorb unexpected costs.
This is a hypothetical example provided for illustration purposes only. This example is not a loan offer or quote, does not include interest rates or APRs, and the actual terms of the loan will vary depending on the lender and the deal.
The right lender for Fix and Flip should clearly explain the total cost and the draw process
Two lenders may advertise the same terms for their loan, but offer a very different experience. As a Mortgage Broker, The Mortgage Shop can present an investor’s deal to multiple lenders, allowing them to compare options side by side. Our guide to investment property loans covers a wider range of financing options available to investors.
Before choosing a lender, compare these six things:
- Total loan cost: Review interest, points, origination fees, draw fees, and any early repayment or extension fees listed on the term sheet.
- Draw process: Specify how inspections will be coordinated and how quickly funds will be released once approved.
- Financing amount: Confirm how much of the purchase price and renovation budget the lender will finance.
- Experience requirements: Some lenders require prior experience in flips, while first-time investors may have to put more cash into the project.
- Closing speed and proof of funds: Your ability to close the deal quickly can be important, as you may be competing with cash buyers.
- Extension terms: Specify what will happen financially if the property doesn’t sell before the original loan maturity date.
Fix and Flip financing ends with a sale or DSCR Refinance if you keep the property
Each Fix and Flip loan requires a specific exit strategy. Most investors plan to sell the renovated property, but some choose to keep it as a rental property.
If you decide to keep the property, a DSCR loan may be used to pay off the original Flip loan. DSCR stands for Debt Service Coverage Ratio, and this type of loan is qualified primarily based on the rental income of the property, not your personal income.
Ask your lender about any waiting periods required early in the process to make sure your refinance strategy fits with the project’s timeline.
Cash buyers have another option. Fannie Mae generally requires borrowers to have owned the property for six months before cashing out, although there may be exceptions for some eligible cash purchases. Our Guide to Delayed Financing explains the process.
This exception applies to conventional loans and eligible cash purchases, so it does not apply to a flip project that was initially financed with a lender.
Taxes are another part of the exit strategy. According to the IRS, gains from a property held for a year or less are generally considered short-term gains and are taxed at ordinary income tax rates. How taxes are applied can also depend on whether your flip is considered a business, so consult a CPA before deciding when to sell.
