Fix & flip loans: what they cost and what they cover

A fix & flip loan finances a property you intend to renovate and sell. It is short — six to eighteen months — interest-only, and judged mostly on the deal: what it costs, what it will be worth finished, and whether you have done this before.

The two caps, and why the lower one wins

Lenders cap the loan two ways at once: a percent of cost (purchase plus renovation) and a percent of after-repair value. You get the lower of the two.

Purchase $300,000, renovation $60,000 — so cost is $360,000. Say the finished houses on that street sell for $500,000.

• 90% of cost: 0.90 × $360,000 = $324,000
• 75% of ARV: 0.75 × $500,000 = $375,000

The cost cap is lower, so the loan is $324,000 and you bring the other $36,000 — plus points and closing costs.

Now suppose the finished comparables are $420,000 rather than $500,000. 75% of $420,000 = $315,000, and the ARV cap bites instead. Your cash requirement just went up $9,000, and nothing about the house changed — only the evidence about what it sells for.

The renovation money arrives in stages

This catches first-timers out. The rehab budget is not handed over at closing.

You pay the contractor for a stage, an inspector confirms it is done, and the lender reimburses you. So you need cash to start — and the more stages, the more working capital you float.

What it costs, worked all the way through

A $324,000 loan at 11.5% interest-only, 2 points, held eight months:

On a flip clearing $90,000 that is the price of being able to do the deal at all. On one clearing $40,000 it is most of your profit. Run it before you sign anything.

Rates and points vary by lender, borrower experience, credit and the deal. The figures above are an illustration, not a quote.

The number that decides everything

The ARV. Get it from sold comparables of finished houses nearby — not from a listing price, not from an automated estimate, not from what the contractor reckons. An optimistic ARV is the single most common reason a flip loses money, and the appraiser will not share your optimism.

What lenders look at in you

• Experience. Completed flips in the last three years, with addresses. This drives both leverage and rate.
• Credit. Most have a floor, often somewhere between 620 and 680.
• Cash. Down payment, points, closing costs, the first draw, and a reserve for the overrun that always happens.
• The entity. Most investor lenders lend to an LLC, not to you personally.

Before you call anyone

Have the purchase contract, a line-by-line renovation budget (not a round number), the sold comparables behind your ARV, and an honest count of what you have done before. A file with those four things gets an answer in days. A file without them sits in a pile.

Run your numbers first — the fix & flip calculator shows both caps, your cash to close, and what is left at the end. Then send us the deal.