Fix-and-flip loans are short-term loans designed to buy and renovate a property that you plan to sell. Lenders usually fund based on the property's value after renovation rather than on your personal income.

How the loan is structured

• Purchase funding: the lender finances a percentage of the purchase price, often up to roughly 70–90% depending on experience and the deal.
• Rehab funding: renovation costs are typically held back and released in draws as work is completed and inspected.
• After-repair value (ARV): many lenders cap the total loan as a percentage of ARV.
• Term and payments: 6–18 months, usually interest-only, with the balance due at sale or refinance.

What lenders look at

• The purchase price, scope of work and a realistic ARV.
• Your track record on previous projects (first-timers can still qualify, often with lower leverage).
• Cash for the down payment, closing costs and reserves.
• A credit score in the range the lender requires.
• Your contractor's experience and the renovation budget.

Protect your margin

• Add a contingency of 10–20% to the rehab budget.
• Include holding costs: interest, taxes, insurance and utilities for every month you own the property.
• Count selling costs such as agent commissions and closing costs.
• Have a backup exit: if the flip does not sell, could you rent the property and refinance into a DSCR loan?

See our Fix & Flip Loans page for a summary of loan features.

Deal math: an illustration

Many investors use the “70% rule” as a quick screen. It says to pay no more than 70% of the after-repair value (ARV) minus rehab costs. With made-up numbers: if ARV is $330,000 and rehab costs $50,000, the maximum price is $330,000 × 0.70 − $50,000 = $181,000. The rule is a rough guide, not a lender requirement, and it ignores your actual financing and selling costs.

A fuller check adds interest, taxes, insurance and utilities for each month you hold the property, plus agent commissions and closing costs when you sell. If the deal only works with no delays, the margin is too thin.

How rehab draws work

The lender holds back the renovation money and releases it in stages. Typically you complete work, request a draw, and an inspector confirms progress before funds are released. You may need to pay contractors from your own cash first and be reimbursed, so keep working capital beyond the down payment.

Common mistakes

• Overestimating ARV with a few best-case comparable sales.
• Underestimating rehab cost and time, especially permits and surprises behind walls.
• Ignoring holding costs while the property sits unfinished or unsold.
• Having no backup plan if the property does not sell at the expected price.

Frequently asked questions

Can first-time flippers get approved? Some lenders work with beginners, usually with lower leverage or a more experienced partner or contractor involved.

Do I need cash beyond the down payment? Yes. Plan for closing costs, interest reserves, contractor deposits and a contingency.

What if the flip does not sell? Have a backup, such as renting the property and refinancing into a DSCR loan, and confirm that it would qualify.

This article is for educational purposes only and is not financial advice. Terms vary by lender; confirm current requirements before applying.