How Does a Fix-and-Flip Loan Work? The Complete Process Explained

What Is a Fix-and-Flip Loan?

A fix-and-flip loan is a short-term loan, usually 6 to 24 months, that covers both the purchase price and the renovation costs of an investment property. You buy a property that needs work, renovate it, and either sell it for a profit or refinance into a long-term loan. The fix-and-flip loan is the financing that makes the whole thing possible.

Think of it as a project loan. It has a start date (when you close on the purchase) and an end date (when you sell or refinance). Everything in between is the renovation phase, and the loan is structured around that timeline.

If you have heard the terms "hard money loan" or "rehab loan," those are basically the same thing. The industry uses the names interchangeably. The key feature that separates a fix-and-flip loan from a regular mortgage is the draw process, where the lender releases renovation funds in stages as you complete the work. More on that below.

The Application Process: From First Call to Term Sheet

Getting a fix-and-flip loan is faster and less paperwork-heavy than a conventional mortgage. Here is what the process actually looks like:

Step 1: Submit your deal details. You provide the property address, purchase price, estimated rehab budget, your ARV (after-repair value) estimate, and your experience level. Most lenders have an online form or you can call in. If you are working with a broker like Sinai Capital, we submit this to multiple lenders simultaneously so you can compare offers.

Step 2: Lender review. The lender runs comps to verify your ARV, reviews the scope of work, and checks your credit and experience. This happens fast. Most lenders turn around an initial response within 24 to 48 hours.

Step 3: Term sheet issued. If the deal checks out, you get a term sheet outlining the loan amount, rate, points, term length, draw structure, and any conditions. This is not a commitment letter yet, but it tells you exactly what the lender is willing to offer.

Step 4: Appraisal and underwriting. Once you accept the terms, the lender orders an appraisal (or a BPO on smaller deals). The underwriter verifies the property value, confirms the rehab budget is realistic, and clears conditions. Total timeline from application to closing: 7 to 14 business days for most lenders.

The Draw Process: How Renovation Funds Are Released

This is the part that trips up first-time flippers, so pay attention. The lender does not hand you the full rehab budget at closing. Instead, the renovation money is held in a reserve account (sometimes called an escrow or holdback). You access it through draw requests as you complete work.

Here is how it works step by step:

1. You close on the property. The lender funds the purchase portion of the loan. The rehab funds go into a holdback account.

2. You start renovations and complete a phase of work. Maybe you finish demo and framing. Maybe you complete the rough-in for plumbing and electrical. The point is, you do the work first using your own cash or a line of credit.

3. You submit a draw request. This is a simple form to the lender showing what work was completed, usually with photos and invoices.

4. The lender sends an inspector. A third-party inspector visits the property to verify that the work described in your draw request is actually done. This is a quick visit, usually 15 to 30 minutes.

5. Funds are released. Once the inspector confirms the work, the lender releases that portion of the rehab funds to you. This typically takes 2 to 5 business days after inspection.

The key thing to understand: you need enough cash on hand to fund each phase of renovation before the draw reimburses you. If your first renovation phase costs $15,000, you need to have $15,000 available to pay contractors and buy materials upfront. The draw pays you back after the work is verified.

What It Costs: Full Fee Breakdown

Fix-and-flip loans are more expensive than conventional mortgages. That is the tradeoff for speed, flexibility, and the ability to finance renovation costs. Here is what you are looking at:

A "point" is 1% of the loan amount. So on a $260,000 loan, 2 points equals $5,200 paid at closing. The interest rate is charged monthly on the outstanding balance. Since fix-and-flip loans are interest-only, your monthly payment on a $260,000 loan at 10% is roughly $2,167/month.

Rates and points vary based on your experience, credit score, the deal itself, and how competitive the lender is. Working with a broker gives you access to multiple lenders so you can compare and pick the best combination of rate and fees for your specific deal.

What Lenders Look For When You Apply

Fix-and-flip lenders care about three things: you, the deal, and the exit. Here is what they evaluate:

Your Credit Score

Most lenders want a 660 or higher. Some will go down to 620, but expect higher rates and more points. If you are above 700, you get the best pricing available. Credit score affects your rate more than anything else on the borrower side.

Your Experience

Some lenders fund first-time flippers. Others want to see 2 or more completed flips before they will work with you. Experience affects your leverage (how much you can borrow), your rate, and sometimes whether you get approved at all. If you are new, be upfront about it. Lenders who work with first-timers would rather know that from the start so they can structure the deal accordingly.

The Deal Itself

This is the biggest factor. Lenders want to see a realistic ARV backed by solid comps, a rehab budget that makes sense for the scope of work, a good location (properties in declining neighborhoods are harder to finance), and a clear scope of work that a contractor has reviewed. The deal has to make money. If the lender looks at your numbers and the margins are razor thin, they will either pass or reduce leverage to protect themselves.

Your Cash Position

You need enough cash for the down payment, closing costs, and enough reserves to fund renovation work before draw reimbursements come through. Lenders want to see that you will not run out of money mid-project.

The Bottom Line

A fix-and-flip loan is built for one purpose: get you into a deal, fund the renovation, and get out of the way once the project is done. The loan covers purchase and rehab. The draw process releases renovation funds as you complete work. The whole thing is designed to be temporary.

The biggest mistakes first-time flippers make are underestimating how much cash they need to front before draws reimburse them, and not having a tight scope of work before they apply. Get those two things right and the financing part is straightforward.

Ready to run the numbers on a flip? Check out our fix-and-flip loan page for current rates and terms, or submit your deal for a quote. Sinai Capital works with 50+ lenders, so we can match your deal to the lender that offers the best combination of rate, leverage, and speed for your specific project.