FIX AND FLIP
Fix-and-Flip Loans Explained: How They Work, What They Cost, and How to Get One
The Loan That Makes Flipping Possible
A fix-and-flip loan is a short-term financing product designed specifically for investors who buy a property, renovate it, and sell it for a profit. Unlike a conventional mortgage where you borrow money, buy a house, and make payments for 30 years, a fix-and-flip loan bundles the purchase price and the renovation budget into a single loan, gives you 6 to 18 months to complete the project, and charges interest only on the outstanding balance while you work. When the flip is done, you sell the property, pay off the loan, and keep the profit.
This is the loan product that lets investors buy distressed properties without paying all cash. It is the product that funds $50,000 or $100,000 in renovations without draining your savings account. And it is the product that makes it possible to flip two or three houses simultaneously instead of waiting until one is done before starting the next.
In this guide, we cover everything: how the loan is structured, what it costs (rates, points, and holding costs), how to qualify, what ARV and LTC and LTARV actually mean, how rehab draws work in practice, and what your exit strategies look like when the project is complete. If you are considering your first flip or your fiftieth, this is the reference you need.
How a Fix-and-Flip Loan Is Structured
A fix-and-flip loan has two components: the acquisition portion and the rehab portion. Both are part of a single loan, but they work differently.
Acquisition Portion
The lender finances a percentage of the purchase price, typically 80% to 90%. On a $200,000 property, an 85% LTC (loan-to-cost) loan funds $170,000 of the purchase. You bring $30,000 as your down payment, plus closing costs. This portion of the loan is disbursed at closing, just like a conventional purchase loan. The lender wires the funds to the title company, the title company pays the seller, and you take ownership of the property.
Rehab Portion
The lender also commits to funding your renovation budget, typically 100% of the approved rehab amount. On a $75,000 renovation, the lender adds $75,000 to your total loan commitment. But this money is not given to you at closing. It is held in an escrow account and released in draws as you complete portions of the work. This protects the lender from funding a renovation that never happens and protects you from paying interest on money you have not used yet.
Your total loan commitment in this example is $245,000 ($170,000 acquisition + $75,000 rehab). Your initial disbursement at closing is $170,000. As you complete work and request draws, the balance increases until the full $245,000 is outstanding.
Repayment
Fix-and-flip loans are interest-only. There is no principal amortization. You pay interest each month on whatever balance is currently outstanding, and when you sell the property (or refinance), you pay off the entire loan balance in one lump sum. Most loans have terms of 6 to 18 months, with 12 months being the most common. Some lenders offer extensions of 3 to 6 months for an additional fee if you need more time to complete the project or sell the property.
What a Fix-and-Flip Loan Costs: Rates, Points, and Holding Costs
Fix-and-flip loans are more expensive than conventional mortgages or DSCR loans. That is because they are short-term, higher-risk loans on properties that need work. The lender is taking on the risk that the renovation goes over budget, the market shifts, or the property does not sell. That risk is priced into the rate and the fees. Here is what you should expect in 2026.
Interest Rates
Rates on fix-and-flip loans in Q1 2026 range from 9.00% to 12.00%. Where you land within that range depends on your credit score, experience level, the strength of the deal, and the lender. A first-time flipper with a 680 credit score is getting 11.00% to 12.00%. An experienced investor with a 740+ score and a track record of successful flips is getting 9.00% to 10.00%. The rate is calculated on the outstanding loan balance, and since the loan is interest-only, your monthly payment is simply the balance times the annual rate divided by 12.
Origination Points
Origination is charged as a percentage of the total loan amount, expressed in points. One point equals 1% of the loan. In 2026, origination on fix-and-flip loans runs from 1.5 to 3.0 points. On a $245,000 loan, that is $3,675 to $7,350. Origination is typically due at closing, though some lenders will roll it into the loan balance. Lower origination often comes with higher rates, and vice versa. There is always a tradeoff between upfront cost and ongoing cost.
Holding Costs
Beyond the loan itself, you are paying holding costs every month the property is in your name. These include property taxes, insurance (builder's risk or vacant property policy), utilities, and any HOA fees. On a typical $200,000 purchase, expect $700 to $900 per month in non-interest holding costs. Add your interest payment and total monthly carrying costs run $2,500 to $3,500 per month depending on the loan amount and rate.
Typical Fix-and-Flip Loan Costs (Q1 2026)
Interest Rate
9.00% - 12.00%
Origination
1.5 - 3.0 points
Loan Term
6 - 18 months
Closing Costs
$3,000 - $6,000
Monthly Holding (non-interest)
$700 - $900
Extension Fee
0.5 - 1.0 points
Use our loan calculators to model the exact costs on your deal. Input the purchase price, rehab budget, rate, and hold period, and you will see total interest, total project cost, and projected profit.
ARV, LTC, and LTARV: The Three Numbers That Control Your Loan
Fix-and-flip lenders use three metrics to size your loan. Understanding all three is essential because the lender will calculate your maximum loan amount based on whichever metric produces the smallest number. The most restrictive metric wins.
After-Repair Value (ARV)
ARV is the estimated market value of the property after renovations are complete. It is determined by an appraiser who looks at comparable sales of recently renovated properties in the same area. On a flip, the ARV is the number that determines whether the deal makes money. If you buy for $200,000, spend $75,000 on rehab, and the ARV is $350,000, you have $75,000 in gross spread before accounting for loan costs, holding costs, and selling costs. If the ARV is only $290,000, the deal is marginal at best.
Loan-to-Cost (LTC)
LTC is the loan amount divided by the total project cost (purchase price plus rehab budget). Most fix-and-flip lenders cap LTC at 85% to 90%. On a $275,000 total project cost ($200,000 purchase + $75,000 rehab), a 90% LTC loan gives you $247,500. A 85% LTC loan gives you $233,750. The remaining 10% to 15% of total project cost comes out of your pocket.
Loan-to-After-Repair-Value (LTARV)
LTARV is the loan amount divided by the ARV. Most lenders cap this at 65% to 75%. On a $350,000 ARV, a 70% LTARV cap means the maximum loan is $245,000. A 75% LTARV cap allows up to $262,500. This metric ensures the lender is not overleveraged relative to the finished property value.
How They Work Together
Let us run a real example. Purchase price: $200,000. Rehab: $75,000. Total cost: $275,000. ARV: $350,000.
In this case, the LTARV is the binding constraint. Even though the lender would go to 90% of cost ($247,500), the 70% LTARV cap limits the loan to $245,000. Your out-of-pocket is the difference between total project cost and loan amount, plus origination and closing costs. On a deal where the ARV is much higher relative to cost, the LTC becomes the binding constraint instead.
How to Qualify for a Fix-and-Flip Loan
Fix-and-flip lenders evaluate three things: the borrower, the deal, and the exit. Unlike conventional loans that focus heavily on income and DTI ratios, fix-and-flip underwriting weighs all three factors roughly equally.
Borrower Qualifications
- Credit score: Most lenders require a minimum of 620 to 660. Scores above 700 get better rates and terms. Below 620, options are very limited and rates exceed 12%.
- Experience: This is a major factor. First-time flippers can get funded, but they pay higher rates (usually 1% to 2% above experienced investors), face lower leverage (80% to 85% LTC instead of 90%), and may need to work with a general contractor rather than self-managing the rehab. Experienced flippers with 3+ completed projects in the past 24 months qualify for the best programs.
- Liquidity: Lenders want to see that you have enough cash to cover your down payment, closing costs, and several months of holding costs. Typical requirement is 10% to 20% of the total project cost in liquid reserves after closing. On a $275,000 project, that means $27,500 to $55,000 in cash or cash equivalents after your down payment.
Deal Qualifications
- ARV must be supported by comps. The lender orders an appraisal, and if the comps do not support your projected ARV, the loan gets sized down. Be conservative in your ARV estimates and make sure comparable properties have actually sold within the past 6 months in the same area.
- Rehab budget must be realistic. Lenders review your scope of work line by line. If the numbers look too low, they will either require a higher contingency or reduce the approved rehab amount. If the numbers look too high relative to the ARV, the deal may not qualify because the margin is too thin.
- The 70% rule (or close to it). Most experienced investors and lenders use the 70% rule as a benchmark: purchase price should not exceed 70% of ARV minus rehab costs. On a $350,000 ARV with $75,000 rehab, that means a max purchase of $170,000. Deals above this threshold can still work, but the margins are tighter and the lender may adjust terms accordingly.
Exit Strategy
Every fix-and-flip lender wants to know how you plan to pay them back. The two standard exits are selling the finished property or refinancing into a long-term loan. The lender will evaluate whether the exit is realistic based on the ARV, the local market conditions, and your timeline. If you are planning to sell, they want to see that comparable renovated properties are moving within 60 to 90 days of listing. If you are planning to refinance, they want to see that the property will qualify for a DSCR loan or conventional loan after the renovation is complete.
How Rehab Draws Work in Practice
The rehab draw process is the part of fix-and-flip lending that confuses first-time borrowers the most. Here is exactly how it works, step by step.
Step 1: Submit Your Scope of Work
Before closing, you provide the lender with a detailed scope of work (SOW) that lists every renovation item, the cost for each, and the expected timeline. This is not a one-line budget. It is an itemized document: kitchen renovation $18,000, bathroom 1 renovation $6,000, bathroom 2 renovation $6,000, flooring $8,000, paint $5,500, HVAC $6,000, and so on. The lender reviews and approves each line item.
Step 2: Complete Work in Phases
After closing, you begin the renovation. Most borrowers break the project into 3 to 5 phases based on the scope. For example, Phase 1 might be demolition, structural work, and rough-in for plumbing and electrical ($25,000). Phase 2 is HVAC, insulation, drywall, and flooring ($20,000). Phase 3 is kitchen, bathrooms, paint, and finish work ($25,000). Phase 4 is exterior and landscaping ($5,000).
Step 3: Request a Draw
When a phase is complete, you submit a draw request to the lender. This includes photos of the completed work and an itemized list of what was done. The lender sends a third-party inspector to the property to verify the work is complete and matches the approved SOW.
Step 4: Inspection and Disbursement
The inspector visits the property, typically within 2 to 5 business days of your request. If the work passes inspection, the lender releases the funds for that phase. Disbursement usually takes 3 to 7 business days after inspection approval. From draw request to cash in hand, expect 5 to 12 business days.
Important Details to Know
- You pay for the work first. Draws reimburse you for completed work. You need working capital to pay contractors and buy materials before the draw is released. This is why lenders require liquid reserves.
- Inspection fees: Each draw inspection costs $150 to $250, paid by the borrower. On a 4-draw project, that is $600 to $1,000 in inspection fees. Budget for this.
- Holdback: Some lenders hold back 10% of each draw until the entire project is complete. So on a $25,000 draw, you receive $22,500 and the remaining $2,500 is released at final completion. This protects the lender from unfinished projects.
- Change orders: If you discover unexpected work during renovation (termite damage, hidden water damage, knob-and-tube wiring), you can submit a change order to the lender requesting additional funds. The lender will review the new scope, adjust the budget, and may require a new appraisal if the total cost changes significantly.
Sample Deal: From Purchase to Profit
Let us walk through a complete flip from start to finish with real numbers.
Deal Overview
Loan Terms
Cash to Close
Holding Costs (7 Months)
Selling Costs (at $320,000 ARV)
Profit Summary
On roughly $36,000 in cash invested, this deal produces nearly $26,000 in net profit over 7 months. That is a 73% return on cash, or about 125% annualized. The deal works because the spread between all-in cost and ARV is large enough to absorb loan costs, holding costs, and selling costs while still leaving a meaningful profit.
Exit Strategies: What Happens When the Flip Is Done
Every fix-and-flip loan has a maturity date, and you need to pay off the full balance before that date. There are two primary exit strategies, and the best investors have both mapped out before they even close on the purchase.
Exit 1: Sell the Property
This is the classic flip exit. Renovate the property, list it on the MLS, sell it to an end buyer, and use the sale proceeds to pay off the fix-and-flip loan. The timeline from listing to closing is typically 45 to 90 days depending on the market and price point. In strong markets, well-renovated flips sell within 30 days. In softer markets or at higher price points, it can take 90 to 120 days.
The risk with this exit is market timing. If the local market slows down between when you bought and when you list, the property may sit longer than expected. Every additional month on market is another month of holding costs. This is why conservative underwriting matters. If the deal only works with a 4-month hold and a 30-day sale, it is too tight. Budget for a 7-to-8 month total hold and be pleasantly surprised if it goes faster.
Exit 2: Refinance Into a DSCR Loan and Hold as a Rental
Sometimes the smarter move is to keep the property. If you renovated a house, the ARV is strong, and the rental market supports a good DSCR ratio, you can refinance the fix-and-flip loan into a DSCR loan and hold the property long-term. The DSCR loan pays off the fix-and-flip loan, and you move from a short-term 10%+ rate to a 30-year fixed in the 7% range.
Using the sample deal above: the renovated property is worth $320,000. A 75% LTV DSCR loan gives you a loan amount of $240,000. That pays off the $220,500 fix-and-flip balance plus closing costs, and you keep the property with built-in equity. If the property rents for $2,000/month and your DSCR loan PITIA is $1,700/month, your DSCR is 1.18. That qualifies with most lenders, and you have a cash-flowing rental with $80,000 in equity.
This is the BRRRR strategy in action: Buy, Rehab, Rent, Refinance, Repeat. The fix-and-flip loan is the tool that makes the "Buy" and "Rehab" steps possible, and the DSCR refinance is the tool that makes the "Rent" and "Refinance" steps possible. Many successful investors alternate between flipping for profit and holding for cash flow, using the same fix-and-flip loan product at the front end of both strategies.
What If the Loan Matures and You Have Not Exited?
If your 12-month loan is maturing and the property has not sold and you have not refinanced, you have a few options. Most lenders offer a 3-to-6 month extension for a fee of 0.5 to 1.0 points. That buys you time, but it also adds cost. If the property is listed and under contract, the lender will usually work with you on timing. If the project is stalled or the market has shifted, you may need to explore a bridge loan refinance to buy more time before the permanent exit. The worst-case scenario is a forced sale at a reduced price to pay off the loan before default. Plan your exit before you enter, and this situation becomes avoidable.
Common Mistakes to Avoid
After working with hundreds of fix-and-flip borrowers, the same mistakes come up again and again. Avoiding these will save you thousands of dollars and months of stress.
- Underestimating the rehab budget by 15% to 25%. New investors consistently underbudget. Once you open walls, you find plumbing issues, termite damage, and outdated electrical that was not visible during the walkthrough. Always add a 10% to 15% contingency to your budget.
- Ignoring holding costs in the profit calculation. A 7-month hold at $2,800/month in carrying costs is $19,600. That comes straight off your profit. Budget for it before you buy.
- Overestimating ARV based on cherry-picked comps. Use the most conservative comparable sales, not the highest. Lenders do the same thing, and if your ARV expectation does not match the appraisal, your loan gets sized down and your cash requirement goes up.
- Not having a contractor lined up before closing. If you close on Monday and your contractor cannot start for 6 weeks, you are paying $2,800/month in holding costs for nothing. Have your crew ready to start the day after closing.
- Choosing rate over reliability. The cheapest lender is not always the best lender. If a lender promises 9% but takes 5 weeks to close and 3 weeks to process draws, the holding cost delay may exceed the savings. Speed and reliability matter more than a quarter-point on rate.
The Bottom Line
Fix-and-flip loans are the engine behind residential real estate investing. They let you buy properties you could not afford in cash, fund renovations without draining your reserves, and leverage a relatively small amount of capital into deals that produce 50% to 100%+ returns on your cash investment. The tradeoff is cost: 9% to 12% interest, 1.5 to 3 points in origination, and holding costs that compound every month.
The investors who make money consistently are the ones who know every line item in the budget before they close, who have realistic ARV expectations supported by comps, who have contractors ready on day one, and who have a clear exit strategy whether that is selling the finished product or refinancing into a DSCR loan and building a portfolio.
Ready to run the numbers on your next flip? Use our loan calculators to model your deal, or explore fix-and-flip loan options to see current rates and terms. Sinai Capital works with 50+ lenders and can get you pre-qualified in 2 minutes with no credit pull and no commitment.
Disclaimer: This content is for informational purposes only and does not constitute financial advice or a commitment to lend. Rates, terms, and market conditions are subject to change. Contact Sinai Capital for a personalized quote.
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