One of the most common questions new real estate investors ask is whether fix and flip loans are considered commercial financing. The answer isn’t as straightforward as you might think. In this comprehensive guide, we’ll break down everything you need to know about the commercial classification of fix and flip loans in today’s market, how they differ from traditional commercial loans, and why this distinction matters for your investment strategy.
Understanding Loan Classifications in 2025
Before we dive into fix and flip loans specifically, let’s clarify how loans are categorized in the current lending landscape:
- Residential Loans
- For primary residences or 1-4 unit investment properties
- Typically lower interest rates
- Longer terms (15-30 years)
- Commercial Loans
- For 5+ unit properties or business purposes
- Shorter terms (5-20 years)
- Higher interest rates
- Stricter underwriting
- Business Purpose Loans
- Includes fix and flip financing
- Considered a hybrid category
- Not technically “commercial” but not residential either
Are Fix and Flip Loans Commercial? The Answer
Fix and flip loans are not technically commercial loans, but they are business-purpose loans. Here’s why:
- They’re used for investment/business purposes (not personal use)
- They follow commercial-style underwriting (property-based)
- But they’re typically for 1-4 unit residential properties
The key distinction in 2025 is that most fix and flip loans fall under the “business purpose loan” category rather than traditional commercial loans.
How Fix and Flip Loans Compare to Commercial Loans
| Feature | Fix and Flip Loans | Traditional Commercial Loans |
|---|---|---|
| Property Types | 1-4 unit residential | 5+ unit multifamily, retail, office |
| Loan Terms | 6-18 months | 5-20 years |
| Interest Rates | 9-14% | 6-10% |
| Underwriting Focus | After Repair Value (ARV) | Property cash flow |
| Prepayment Penalties | Common (1-3%) | Less common |
| Recourse | Usually recourse | Often non-recourse |
Why This Classification Matters for Investors
Understanding that fix and flip loans are business-purpose (not commercial) loans affects:
- Regulatory Requirements
- Different disclosure rules than residential mortgages
- No Dodd-Frank protections
- Lender Options
- Specialized private lenders vs traditional banks
- Loan Features
- Shorter terms than residential loans
- Higher rates than conventional mortgages
- Tax Treatment
- Interest may be deductible as business expense
- Different from investment property mortgage interest
2025 Fix and Flip Loan Requirements
While not commercial loans, fix and flip financing still has specific requirements:
✅ Credit Score: 600+ (some lenders like Truss Financial Group may go lower)
✅ Down Payment: 20-35% of purchase price
✅ Experience: 0-3+ completed flips (varies by lender)
✅ Property Condition: Must be residential (1-4 units)
✅ Rehab Budget: Detailed scope of work required
Truss Financial Group: Top Lender for Fix and Flip Loans
When it comes to fix and flip financing, Truss Financial Group stands out in 2025 with:
- No minimum DSCR ratio requirements
- Good credit scores accepted (specifics vary case by case)
- Proof of property income/expenses required
- 20-25% down payment options
- 1-12 unit properties supported
Their streamlined process makes them ideal for both new and experienced flippers.
👉 Get Pre-Approved for a Fix and Flip Loan
5 Key Differences Between Fix and Flip and Commercial Loans
- Property Types
- Fix and flip: Primarily 1-4 unit residential
- Commercial: 5+ units or commercial buildings
- Underwriting
- Fix and flip: Based on ARV
- Commercial: Based on property cash flow
- Loan Terms
- Fix and flip: 6-18 months
- Commercial: 5-20 years
- Interest Rates
- Fix and flip: Typically higher
- Commercial: Often lower for stabilized properties
- Prepayment
- Fix and flip: Often has penalties
- Commercial: More flexible terms
When to Choose a Fix and Flip Loan vs Commercial Loan
Choose Fix and Flip When:
✔ Flipping single-family homes or small multifamily
✔ Need funds quickly (3-7 day approvals)
✔ Short-term holding period (under 18 months)
✔ Property needs significant rehab
Choose Commercial When:
✔ Purchasing 5+ unit apartment buildings
✔ Long-term hold strategy
✔ Property is already stabilized
✔ Need lower interest rates
Tax Implications of Fix and Flip Loans
Because fix and flip loans are business-purpose loans:
- Interest is fully deductible as a business expense
- Rehab costs may qualify for immediate deduction
- Profit is taxed as ordinary income (not capital gains)
- No owner-occupancy tax benefits
FAQ: Fix and Flip Loan Classification
❓ Can I use a fix and flip loan for a commercial property?
No, these loans are specifically for 1-4 unit residential properties. For commercial properties, you’ll need a traditional commercial loan.
❓ Do fix and flip loans show up on my personal credit?
Sometimes. Many private lenders don’t report to personal credit bureaus unless the loan goes into default.
❓ Can I live in a property financed with a fix and flip loan?
No, these are strictly for investment properties. Living in the property would violate loan terms.
❓ Are fix and flip loans regulated like mortgages?
No, as business-purpose loans they aren’t subject to the same consumer protection regulations.
How to Apply for a Fix and Flip Loan in 2025
- Find a Property – Identify a distressed home with good flip potential
- Get Pre-Approved – Work with a lender like Truss Financial Group
- Submit Documentation – Include purchase contract, rehab budget, and comps
- Property Appraisal – Lender will order an appraisal and ARV assessment
- Underwriting – Typically takes 3-7 days
- Closing – Sign loan docs and fund the deal
🚀 Ready to Start Your Fix and Flip Project?
Truss Financial Group makes it easy to get the financing you need with competitive 2025 terms: