Fix and Flip Financing: How to Fund Your Next Renovation Project

Fix and flip financing is the engine behind the renovation real estate market. Whether you are an experienced flipper or looking to fund your first project, understanding how fix and flip loans work — and how to structure them correctly — can mean the difference between a profitable deal and a financial headache.

What Is Fix and Flip Financing?

Fix and flip loans are short-term loans designed specifically for investors who purchase properties, renovate them, and sell them for a profit. These loans cover both the acquisition of the property and the cost of renovations, giving borrowers a single financing solution for the entire project.

Unlike traditional mortgages, fix and flip loans are asset-based and short-term, typically lasting 6 to 18 months. They are structured around the project timeline: purchase, renovate, sell. The lender is repaid from the sale proceeds.

How Fix and Flip Loans Work

The mechanics of a fix and flip loan are straightforward, but understanding the key components is essential:

Loan-to-Cost (LTC) vs. Loan-to-Value (LTV)

Fix and flip lenders typically use Loan-to-Cost (LTC) rather than Loan-to-Value (LTV). LTC measures how much of the total project cost the lender will finance:

• LTC = Loan Amount / (Purchase Price + Renovation Costs)
• Most lenders offer up to 85% to 90% LTC, with some programs going as high as 95% LTC for experienced borrowers.

Lenders will also cap the loan based on After-Repair Value (ARV) — typically up to 70% to 75% of ARV — to ensure there is enough equity in the deal after renovations.

Draw Schedule for Renovations

Renovation funds are not disbursed upfront. Instead, the lender releases funds in draws as work is completed. After each phase of renovation, you request a draw, the lender sends an inspector, and funds are released. This protects both the borrower and the lender.

Interest-Only Payments

Fix and flip loans are interest-only, meaning you only pay interest on the disbursed amount each month. There is no principal amortization during the loan term. Some programs even allow interest reserves to be built into the loan, so you do not make payments out of pocket during the renovation.

Typical Fix and Flip Loan Terms

• Loan-to-cost: Up to 85% to 95% of total project cost (purchase + renovation).
• After-repair value cap: Up to 70% to 75% of ARV.
• Interest rates: 9% to 12%, depending on experience and leverage.
• Loan term: 6 to 18 months.
• Origination fees: 1.5% to 3% of the loan amount.
• Payments: Interest-only on drawn funds.
• Prepayment: No prepayment penalty on most programs.
• Minimum loan amount: $100K to $1M depending on the lender.

How to Qualify for Fix and Flip Financing

Fix and flip lenders evaluate both the deal and the borrower. Key factors include:

• Experience — how many flips you have completed. First-time flippers can qualify, but may get lower leverage and higher rates.
• The deal itself — purchase price, renovation budget, after-repair value, and comparable sales.
• Liquidity — cash reserves to cover your equity contribution, carrying costs, and unexpected expenses.
• Credit score — typically 650+ for most lenders, though some programs accept lower scores.
• Contractor and renovation plan — a detailed scope of work and budget, ideally with a licensed general contractor.

Common Property Types for Fix and Flip

• Single-family homes
• Townhouses and condos
• Small multifamily (2-4 units)
• Mixed-use properties
• Small commercial buildings

Pros and Cons of Fix and Flip Financing

Advantages

• High leverage — up to 95% of total project cost
• Interest-only payments keep carrying costs low
• Fast closing — typically 7 to 14 business days
• No prepayment penalty on most programs
• Renovation costs included in the loan

Disadvantages

• Higher interest rates than conventional financing
• Short term creates time pressure to complete the project
• Draw process adds administrative overhead
• Origination fees are higher than traditional loans
• Requires a solid exit strategy (sale or refinance)

How to Apply for Fix and Flip Financing

Passy Capital connects investors with the best fix and flip lenders and renovation financing programs in the market. Here is how to get started:

1. Submit your deal — tell us about the property, your renovation plan, and your experience.
2. We present you with the best fix and flip loan options from our lender network within 24 hours.
3. We manage the process from term sheet through closing, including coordinating the draw schedule.

Use our loan calculator to estimate your monthly interest payments, or submit a deal to get financing options today.