What Is a Fix and Flip Loan?

A fix and flip loan is short-term financing designed to help investors buy a distressed or under-improved property, renovate it, and resell it for a profit. These loans typically cover the purchase and renovation costs in a single package and are structured for fast approval and short terms to match the speed of flip projects.

Typical Fix and Flip Loan Features

Programs vary, but many fix and flip loans include features like:

• Fast approval—many borrowers receive approval within 7–10 business days.
• Loan terms that are short—commonly 6–18 months.
• Financing that covers both purchase and renovation costs.
• Flexible repayment or extension options if you need more time.
• Eligibility guidelines such as a minimum credit score (often around 620), non-owner-occupancy, proof of financial stability, and preferably an investment plan and renovation budget.
• Minimum loan amounts—many programs start at $100,000.

Key Cost Categories: What You Need Money For

When planning a flip, your required cash covers more than just the purchase and renovations. Below are the typical categories to budget for:

1. Down Payment or Gap Cash

Most lenders do not finance 100% of the deal. Lenders commonly advance up to a percentage of the property’s after-repair value (ARV) or the purchase price. Typical maximums are in the range of 65%–75% of ARV, which means you will need cash or other sources to cover the difference.

2. Renovation Budget (Hard Costs)

All labor, materials, permits, and contractor fees required to bring the house to market-ready condition. Be realistic—underestimating scope is one of the main reasons flips lose money.

3. Soft Costs

Architectural plans, engineering, permit fees, inspections, staging, utility connections, and other non-construction expenses.

4. Carrying Costs

While you own the property, expenses like loan interest, property taxes, insurance, utilities, and HOA fees continue. Budget monthly carrying costs until the sale closes.

5. Closing Costs (Purchase and Sale)

Costs paid at purchase (title fees, lender fees, escrow) and at sale (agent commissions, closing fees). Factor both sides into your plan.

6. Contingency Reserve

An emergency fund for unexpected problems—commonly 5%–15% of the rehab budget depending on property condition and scope. Never skip a contingency.

7. Holding Reserves

Lenders and experienced investors recommend having reserves to cover delays, interest, and cost overruns. These reserves can be cash in hand or accessible lines of credit.

How Lenders Typically Structure Funding

Understanding common underwriting approaches helps you estimate how much cash you personally need to bring to the table.

ARV-Based Lending

Many fix and flip loans are ARV-based: the lender will lend up to a percentage (for example, 65%–75%) of the after-repair value. The lender subtracts the estimated rehab costs and your down payment is the remaining difference needed to reach the purchase price.

Purchase-Plus-Rehab Funding

Some programs state they will cover the purchase and the rehab up to a set LTV or to an agreed budget. In these cases the lender will also require proofs, invoices, and inspections to release funds for rehab phases.

Typical Minimums and Requirements

• Minimum credit score often around 620.
• Property must be non-owner-occupied (investment property).
• Minimum loan amounts commonly start at $100,000.
• Proof of financial stability and ability to repay is required.
• Recent bankruptcies may disqualify—you’ll likely need no bankruptcy filings within the past two years.
• Experience in real estate is preferred but not always required.

Step-by-Step: How to Calculate the Cash You Need

Use these steps to estimate the cash you need for a specific property.

1. Estimate the After-Repair Value (ARV) — research comps for renovated homes in the same neighborhood.
2. Estimate the Rehab Budget — get contractor quotes and add a contingency (5%–15%).
3. Estimate Selling Costs — agent commission, closing fees (often 6%–10% combined, but verify for your market).
4. Estimate Carrying Costs — interest, taxes, insurance, utilities for the expected holding period.
5. Determine Lender Funding Level — identify the lender’s maximum LTV or % of ARV they will lend.
6. Calculate Lender Contribution — multiply ARV by the lender’s percentage to get maximum loan value.
7. Subtract Loan Proceeds from Total Project Cost — the difference is the cash you need to bring (down payment + reserves + pre-paid costs).

Two Example Scenarios

These examples use rounded numbers to illustrate how much cash you might need under different lender funding levels. They are hypothetical and for educational purposes only.

Scenario A — Conservative Lender (65% of ARV)

• ARV: $200,000
• Lender funds up to 65% of ARV = $130,000
• Purchase price = $120,000
• Rehab budget = $40,000
• Selling costs + carrying + other soft costs = $25,000
• Total project cost = $120,000 + $40,000 + $25,000 = $185,000
• Loan proceeds = $130,000 → Cash needed = $185,000 − $130,000 = $55,000

Scenario B — More Aggressive Lender (75% of ARV)

• ARV: $200,000
• Lender funds up to 75% of ARV = $150,000
• Purchase price = $120,000
• Rehab budget = $40,000
• Selling costs + carrying + other soft costs = $25,000
• Total project cost = $185,000
• Loan proceeds = $150,000 → Cash needed = $35,000

These illustrations show how lender generosity toward ARV materially affects how much cash you must bring upfront. Always run your own numbers and include conservative contingencies.

Practical Tips to Lower the Cash You Need

If your upfront cash is tight, consider these strategies:

• Partner with a capital partner who provides cash while you manage the project.
• Negotiate seller financing or a lower purchase price to reduce the gap.
• Use private money or lines of credit for the rehab portion, then refinance or sell.
• Bid aggressively with your contractor for fixed-price scopes and milestones.
• Choose projects with lighter cosmetic work to reduce rehab costs and contingency needs.
• Keep strong documentation: a clear renovation plan, contractor bids, and pro forma help you qualify for better funding.

How Fast Can You Get Approved?

Approval times vary by program, but many fix and flip lenders provide approval within 7–10 business days when your paperwork is complete and the project plan is solid. Quick approvals make it easier to win competitive deals.

Loan Term and What If You Don’t Sell in Time

Typical fix and flip loan terms range from 6 to 18 months to give you time to complete renovations and sell. If you’re running behind, many lenders offer extension options—contact them in advance to discuss extensions and avoid penalties.

How to Prepare to Qualify

To apply with confidence, gather the following items:

• Credit report and history (minimum credit score commonly around 620).
• Purchase contract and property details.
• Detailed renovation plan and contractor bids.
• Proof of funds or bank statements showing reserves.
• Project timeline and exit strategy (sale or refinance).
• Proof of experience or a plan showing how you will manage the rehab if you are a first-time flipper.

Common Mistakes New Flippers Make

• Underestimating rehab costs or skipping a contingency.
• Not accounting for carrying costs and delays in the resale market.
• Failing to verify title or discover property issues early.
• Choosing the wrong project type for the neighborhood—don’t over-improve for the area.
• Assuming a lender will fund everything—confirm maximum loan-to-ARV or loan-to-cost up front.

When to Talk to a Lender or Broker

If you have a property under contract or a specific project in mind, it’s wise to speak with a loan specialist early. They can pre-approve based on your project details, tell you what documentation you need, and give you a realistic estimate of how much cash you’ll need to close and complete the flip.

If you’re ready to discuss financing options or get a personalized quote for a fix and flip loan, start your application or learn more here: Apply for Fix & Flip Financing.

Rates are competitive and vary based on your credit score, experience, and project specifics. Reach out for a personalized quote today.

Checklist: Quick Budget Worksheet

Copy this simple checklist to calculate your cash need:

1. Estimate ARV
2. Estimate rehab costs + contingency (5%–15%)
3. Estimate selling costs
4. Estimate carrying costs for expected holding months
5. Add purchase price
6. Sum total project cost
7. Multiply ARV by lender’s maximum percentage to find loan cap
8. Cash required = Total project cost − Loan cap
9. Add an additional reserve for unexpected delays