Fix and Flip Loans: A Complete Guide for Real Estate Investors

Fix and flip loans are the backbone of the house flipping industry. They are short-term, asset-based loans designed to fund the purchase and renovation of investment properties. If you are flipping houses — or considering it — understanding how these loans work will directly impact your profitability and deal velocity.

What Is a Fix and Flip Loan?

A fix and flip loan (also called a hard money loan or rehab loan) is short-term financing used to acquire and renovate a residential property for resale. Unlike a conventional mortgage, the lender underwrites the deal primarily based on the property — its purchase price, renovation scope, and after-repair value (ARV) — rather than your personal income and employment history.

These loans are built for speed. While a conventional lender might take 30-45 days to close, fix and flip lenders routinely close in 7-14 days. In competitive markets, that speed is often the difference between winning and losing a deal.

How Fix and Flip Loans Work

The loan is structured in two parts:

1. Acquisition funding. The lender finances a percentage of the purchase price (typically expressed as loan-to-cost, or LTC). You bring the remainder as a down payment.
2. Rehab draws. The renovation budget is held in escrow and released in stages as work is completed. The lender (or a third-party inspector) verifies the work before each draw.

You pay interest-only during the loan term. When you sell the property, you repay the loan from the sale proceeds.

Typical Fix and Flip Loan Terms

• Loan-to-cost (LTC): Up to 90% of total project cost (purchase + rehab)
• Loan-to-ARV: Up to 70-75% of the after-repair value
• Loan term: 12-24 months
• Origination fees: 1-3 points
• Draw schedule: Funds released in 2-5 draws based on completed milestones
• Prepayment: Typically no prepayment penalty

At 90% LTC, a $200,000 total project cost requires only $20,000 out of pocket (plus closing costs). That capital efficiency allows active flippers to run multiple projects simultaneously.

What Lenders Look For

• The property and ARV. Is the purchase price below market? Is the renovation scope realistic? Does the projected ARV hold up against comparable sales?
• Your experience. First-time flippers can get funded, but expect slightly more conservative terms. The more deals you've completed, the better your terms get.
• Your exit strategy. The lender wants to know how you are going to repay. Is the timeline realistic given the scope of work and the local market?
• Skin in the game. You need a down payment. Lenders want to see that you have capital at risk.

The Fix and Flip Timeline

1. Find the deal — identify a below-market property with clear value-add potential through renovation.
2. Get pre-qualified — talk to your lender before you are under contract.
3. Go under contract — having a pre-qualification letter from a private lender signals you can close quickly.
4. Close — with a private lender, this can happen in as few as 7 days. Rehab funds go into escrow.
5. Rehab — execute your renovation plan. Request draws as milestones are completed. Every extra month is carrying cost eating into your margin.
6. List and sell — your goal is to sell quickly at or above your projected ARV.
7. Pay off the loan — at closing, the loan is repaid from sale proceeds. Your profit is what remains.

Common Mistakes That Delay Closings

• Title issues. Liens, cloud on title, probate situations. Run title early if possible.
• Incomplete documentation. Have your entity docs, bank statements, insurance quotes, and contractor bids ready before you go under contract.
• Unrealistic ARV. If your projected value does not hold up against recent comps, the lender will adjust — and your deal economics change.
• Contractor delays. Vet your contractors before you close. Having a reliable crew lined up is as important as the financing itself.
• Insufficient reserves. Budget a 10-15% contingency above your renovation estimate.

How to Choose the Right Fix and Flip Lender

• Closing speed. Can they actually close in 7-14 days? Ask for references from recent borrowers.
• Transparency. Are all fees disclosed up front? No junk fees or surprise charges at the closing table?
• Draw process. How quickly are rehab draws funded after inspection? A slow draw process costs you time and money.
• Communication. Can you reach your loan team when you need them? During a rehab, delays in communication translate directly into carrying costs.
• Refinance path. If you decide to hold instead of sell, can the lender refinance you into a DSCR loan? Having one lender for both short-term and long-term financing simplifies the BRRRR strategy considerably.

How Trilith Funding Structures Fix and Flip Loans

Trilith Funding offers fix and flip financing with up to 90% LTC, 12-24 month terms, and a rehab draw schedule built into every loan. We close in as few as 7 days and our loan team is accessible throughout the process.

Tell us about your deal and we will get back to you right away.