Key takeaways
- Flip loans fund most of the purchase and up to 100% of rehab, but are capped at roughly 70–75% of ARV.
- Rehab money is held back and released in draws after inspections, so you need cash to start work.
- Budget for points, interest, fees, holding and selling costs. Together they often total 15–20% of ARV.
- The 70% rule is a screen, not a guarantee. Always run a full cost stack.
What is a fix and flip loan?
A fix and flip loan is a short-term, interest-only loan for buying and renovating a property you plan to sell. Most are provided by hard money or private lenders because banks rarely finance distressed homes or renovation budgets quickly. Terms usually run 6–24 months, and the loan is repaid from the sale.
How lenders size the loan
Flip lenders use three tests and lend the lowest result:
- Loan-to-purchase: often 80–90% of the purchase price (higher for experienced flippers).
- Rehab funding: commonly 100% of an approved rehab budget, released in draws.
- Loan-to-ARV cap: total loan no more than about 70–75% of after-repair value.
Some lenders express the first two as a single loan-to-cost (LTC) limit. Published programs in 2025–2026 show maximums from about 85% up to 92.5–93.5% LTC for top-tier borrowers.
A worked example
Let's run a realistic flip through our fix & flip calculator:
| Purchase price | $250,000 |
| Rehab budget | $60,000 |
| After-repair value (ARV) | $420,000 |
| Loan: 90% of purchase + 100% of rehab | $225,000 + $60,000 = $285,000 (68% of ARV, under a 75% cap) |
| Rate / points / hold | 10.5% interest-only · 2 points · 7 months |
Now the cost stack:
| Cost | Amount |
|---|---|
| Purchase + rehab | $310,000 |
| Buying closing costs (2%) | $5,000 |
| Points (2% of $285,000) | $5,700 |
| Interest (7 months, full balance) | $17,456 |
| Holding costs ($650/mo) | $4,550 |
| Selling costs (7% of ARV) | $29,400 |
| Total cost | $372,106 |
| Net profit ($420,000 − total) | ≈ $47,894 |
Cash out of pocket is about $57,700 (down payment, closing, points, interest and holding), so the return on cash is roughly 83%, or about 140% annualized over 7 months. But note two warnings:
- The profit margin is only about 11% of ARV. A 5% drop in sale price ($21,000) or a two-month delay would cut profit sharply.
- The 70% rule says the maximum price should be $420,000 × 70% − $60,000 = $234,000. This deal is $16,000 over. It still profits on paper, but with little cushion.
The lesson: financing makes good deals great and thin deals dangerous. Interest is charged on the full balance here for conservatism; if your lender charges interest only on disbursed draws, your cost will be a little lower.
Plug in your own deal
Adjust price, rehab, ARV, rate, points and hold time, and watch profit, ROI and the 70% check update live.
Open the flip calculator →How rehab draws work
- At closing, the lender holds back the rehab budget in a draw account.
- You (or your contractor) complete a phase of work using your own cash.
- You request a draw. The lender sends an inspector, often virtual with photos, or in person.
- The lender reimburses the completed work, minus any draw fee, usually within a few business days.
Because draws are paid in arrears, plan for working capital of at least the first phase of work, often 15–25% of the budget. Get the draw schedule, fees and inspection turnaround in writing before closing.
Who qualifies
- Credit: many lenders want 620–680+; the best pricing usually starts around 700–720.
- Experience: first-time flippers can qualify, typically with lower leverage. Two to five completed projects in 24–36 months unlock better tiers.
- Liquidity: enough cash for the down payment, closing costs, points, carry and reserves.
- Entity: usually an LLC with personal guarantees from the members.
- The deal: a credible scope of work, a realistic ARV supported by comps, and a clear exit.
Costs to ask about up front
- Rate, points, and whether interest is on the full loan or only on drawn funds
- Processing, underwriting and document fees
- Draw and inspection fees
- Extension fees (often 0.5–1% per extension) and default rate
- Prepayment penalty or minimum-interest clauses
- Appraisal or valuation costs
Common mistakes
- Optimistic ARV. Use sold comps, not listings, and haircut them in a softening market.
- No contingency. Add 10–20% to the rehab budget for surprises.
- Underestimating time. Permits, contractors and sales take longer than planned; each month adds interest and holding costs.
- Ignoring the exit. If the sale stalls, can you refinance into a DSCR loan and rent it?