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. The difference between your total costs (purchase + rehab + carrying costs + closing costs) and the sale price is your profit.

Typical Fix and Flip Loan Terms

Terms vary by lender and borrower experience, but here is a general range:

• 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
• Interest rates: Vary by experience level and deal quality
• Origination fees: 1-3 points
• Draw schedule: Funds released in 2-5 draws based on completed milestones
• Prepayment: Typically no prepayment penalty

The higher your LTC, the less cash you need to bring to closing. At 90% LTC, a $200,000 total project cost requires $20,000 out of pocket (plus closing costs). That capital efficiency is what allows active flippers to run multiple projects simultaneously.

What Lenders Look For

Fix and flip lenders evaluate four things:

• The property and ARV. Is the purchase price below market? Is the renovation scope realistic? Does the projected ARV hold up against comparable sales? The deal has to make sense on paper before anything else matters.
• Your experience. First-time flippers can absolutely get funded, but expect slightly more conservative terms (lower LTC, higher rate). The more deals you have completed, the better your terms get.
• Your exit strategy. The lender wants to know how you are going to repay. For a flip, the exit is the sale. 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 — it aligns incentives and reduces their exposure.

The Fix and Flip Timeline

Here is how a typical deal flows from start to finish:

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. Knowing your buying power and terms up front lets you move fast when you find the right property.
3. Go under contract. Submit a competitive offer. Having a pre-qualification letter from a private lender signals to the seller that you can close quickly.
4. Close. With a private lender, this can happen in as few as 7 days. The lender funds the acquisition; rehab funds go into escrow.
5. Rehab. Execute your renovation plan. Request draws as milestones are completed. Stay on schedule — every extra month is carrying cost eating into your margin.
6. List and sell. Once renovations are complete, list the property. 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

Speed matters in this business. Here are the most common things that slow deals down:

• 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. Unexpected costs happen on every project. Budget a 10-15% contingency above your renovation estimate.

How to Choose the Right Fix and Flip Lender

Not all hard money lenders are the same. When evaluating a lender, look at:

• 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 a loan officer will respond within one business day.

Frequently Asked Questions