Fix and Flip Loans — Short-Term Renovation Financing
Renovation and fix-and-flip loans are short-term financing designed for investors who buy distressed or under-improved properties, rehabilitate them, and either resell (flip) or refinance into long-term financing (BRRRR). Unlike a standard purchase mortgage, these loans fund both the acquisition and the rehab budget — typically up to 70–75% of after-repair value (ARV), structured with interest-only payments during the 6–18-month loan term and draws released from escrow as renovation milestones are verified. The appeal is speed and leverage: closings in 10–21 days, funding that covers most of the rehab, and underwriting that focuses on deal economics rather than personal income documentation.
How Renovation Loans Work
Rather than taking out a separate personal loan or line of credit for renovations, a renovation mortgage rolls the improvement costs into one loan with one monthly payment. The lender typically bases the loan amount on the projected value of the home after improvements are completed.
Common Uses
Kitchen and bathroom remodels, roof replacement, HVAC upgrades, structural repairs, accessibility modifications, energy-efficiency improvements, room additions, and cosmetic updates are among the most common projects financed through renovation lending.
Who Benefits
Renovation loans can be a strong fit for buyers purchasing a home that needs work, homeowners looking to upgrade an existing property, or investors acquiring properties that require improvements before they can be rented or resold.
What to Expect
The process typically involves getting contractor bids, an appraisal based on the planned after-renovation value, and a draw schedule where funds are released as work is completed and inspected. Timelines and documentation requirements can vary depending on the scope of the project.
Who Fix-and-Flip Loans Are For
Active flipper building a track record
2–10 completed flips per year. Has a relationship with a crew, a repeatable rehab template, and a clear exit strategy. The main value of fix-and-flip financing is speed and repeatability across deals.
BRRRR investor acquiring rentals through rehab
Buys under-market, rehabs to forced appreciation, places a tenant, and refinances into long-term DSCR. Fix-and-flip loan is the acquisition and rehab vehicle; DSCR is the permanent financing.
First-time flipper with strong financials
No flip history, but strong credit, liquid reserves, and a realistic first deal. Typically qualifies with slightly tighter leverage (65–70% ARV vs. 75%) and higher rate. The first deal sets the pattern.
Owner-occupant buying a fixer (via 203(k) or HomeStyle instead)
For owner-occupied rehabs, FHA 203(k) or Fannie Mae HomeStyle rolls purchase and rehab into a 30-year mortgage. Better pricing and terms than fix-and-flip for primary residences — but they don’t work for investors.
Example Fix-and-Flip Deal
$200k purchase + $50k rehab, ARV $350k
Purchase price $200,000; budgeted rehab $50,000; appraiser’s projected ARV is $350,000. Lender funds up to 70% of ARV = $245,000 total loan amount. That covers 85% of the $200k purchase ($170,000) plus 100% of the $50k rehab escrow, with $25,000 in additional leverage rolled into a holdback reserve for contingency.
Cash required at close: 15% of purchase ($30,000) + 2 points ($4,900) + closing costs ($5,000) + 3 months of interest-only reserves ($5,500) — roughly $45,000 total. Interest-only payment during the 9-month rehab-plus-marketing period runs about $1,800/month at 10.5%. Sale at ARV nets roughly $45–55k profit after commissions, holding costs, and loan payoff — a 100%+ cash-on-cash return.
Eligibility Details
- Credit score
- 660+ typical; 700+ for best pricing
- Cash-to-close
- 10–15% of purchase + points + reserves (~$35–60k on most deals)
- Leverage
- Up to 85–90% of purchase, 100% of rehab, capped at 70–75% ARV
- Rate
- 9–12% interest-only during the loan term
- Points
- 1–3 points at origination (1–3% of loan amount)
- Term
- 6–18 months; extensions available for fee
- Experience
- Prior flip history helps; first-timers qualify with tighter leverage
- Rehab scope
- Most cosmetic, structural, and system rehabs accepted; some lenders exclude ground-up
- Exit strategy
- Sale (flip) or refinance to long-term DSCR/conventional (BRRRR)
- Draw structure
- 4–6 draws from rehab escrow, released on third-party inspection
Run the Numbers
Before making an offer, verify the property cash-flows using the DSCR calculator — critical if the exit strategy is BRRRR rather than flip. For pricing the long-term mortgage on a BRRRR refi, model the permanent payment in the mortgage calculator. Thinking through acquisition financing more broadly? See bridge loan options for deals that need to close faster than standard fix-and-flip timelines support.
Frequently Asked Questions
What's the difference between a fix-and-flip loan and a renovation mortgage?
Fix-and-flip loans are short-term (6–18 months), interest-only, and funded based on after-repair value (ARV) — built for investors who buy, rehab, and resell quickly. Renovation mortgages like FHA 203(k) and Fannie Mae HomeStyle are 30-year owner-occupant loans that roll the purchase price and renovation costs into a single long-term mortgage.
How does after-repair value (ARV) work?
ARV is the appraiser’s projection of what the property will be worth after all planned renovations are complete, based on comparable recently-renovated sales in the area. Lenders typically loan up to 70–75% of ARV — a figure that covers both the purchase price and most of the rehab budget.
Do I need experience to qualify for a fix-and-flip loan?
It helps. Lenders review your flip history (completed projects, profit margins, timeline performance) to assess risk. First-time flippers can still qualify with strong financials, a realistic scope, and often a higher down payment or lower leverage.
How fast can a fix-and-flip loan close?
10–21 days is typical for fix-and-flip lenders, because they underwrite the deal (ARV, rehab scope, borrower experience) rather than the borrower’s personal income and tax returns. That speed is often the difference between winning and losing a distressed property.
What's the typical rate on a fix-and-flip loan?
Rates typically run 9–12% interest-only, plus 1–3 points at origination. Much higher than conventional mortgages, but the loan is short-term (6–18 months) so total interest paid is modest compared to a 30-year loan.
How much cash do I need to bring to a flip deal?
Typical fix-and-flip leverage is 85–90% of purchase + 100% of rehab, up to 70–75% of ARV. On a $200k purchase with $50k rehab and $350k ARV, you might bring 10–15% of purchase ($20–30k) plus closing costs, points, and holding-cost reserves — roughly $35–50k of cash total.
Can I use a fix-and-flip loan for a rental (BRRRR)?
Yes. The BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat) uses a fix-and-flip loan for acquisition and rehab, then refinances to a long-term DSCR or conventional investment loan once the property is stabilized with tenants. This recycles your capital for the next deal.
What counts as an acceptable rehab scope?
Most lenders accept full-gut renovations, kitchen and bath overhauls, structural repair, additions, and system upgrades (roof, HVAC, electrical, plumbing). Some programs exclude ground-up construction or major foundation work. Scope is reviewed against the budget and the ARV calculation.
How does the rehab draw schedule work?
Rehab funds are held in escrow and released in draws as work is completed and verified by a third-party inspector. Typical structure: 4–6 draws aligned with milestones (demo, rough-in, drywall, finishes, punch list, final). You front the work for each phase; lender reimburses on inspection.
What happens if my flip takes longer than the loan term?
Extensions are usually available for a fee (commonly 1% of the loan balance per 3-month extension). Planning for the possibility of extensions — and budgeting the holding costs accordingly — is part of any realistic flip pro forma.
Renovation financing options, eligibility, and terms vary based on the loan program, property type, and borrower profile. Speak with the mortgage team to explore which structure fits your project.