Everyone flips their first house at some point, and many lenders work with first-time flippers. The difference is that with no track record, the lender leans harder on the strength of the deal, your plan and your own cash in the project. Here is what to expect, and how fix and flip loans work in general.
How lenders treat a first deal
- Terms may differ. New investors are often offered lower leverage or slightly different pricing than experienced flippers. The exact terms vary by lender and program.
- The deal has to stand on its own. Lenders size the loan around the purchase price and the after-repair value (ARV), so realistic numbers matter more than anything.
- Your plan carries weight. A clear scope of work, a believable budget and a credible contractor tell the lender the project will actually get finished.
What to have ready
- The purchase contract and the property address.
- A scope of work and rehab budget, itemized, ideally from a contractor’s bid.
- Comparable sales that support your ARV estimate.
- Proof of funds for the down payment, closing costs and reserves.
- If you will close in an LLC, the entity documents. See buying in an LLC.
- Any relevant experience, including rehabs for your own home, work in construction, or a partner who has flipped before.
How the rehab money works
Most flip loans fund the rehab in draws. You complete a stage of work, request a draw, and the lender releases funds for it, often after an inspection. That means you need a way to cover costs between draws, so build a cushion into your plan. Our guide to fix and flip loan costs breaks down points, interest and holding costs.
Ways to improve your odds
- Pick a deal you can verify. A straightforward cosmetic rehab in a market with plenty of recent sales is easier to finance than a complicated project.
- Be conservative on ARV and the budget. Add a contingency for surprises. Running the numbers in the fix and flip calculator shows how much margin you really have.
- Bring a strong contractor. A licensed, experienced contractor with a detailed bid reassures lenders more than almost anything else.
- Bring more of your own cash if you can. More equity in the deal lowers the lender’s risk.
- Know your exit. Whether you plan to sell or refinance into a rental loan, have the next step mapped out.
Common first-timer mistakes
- Underestimating the rehab budget and the time it takes.
- Overestimating the ARV by using the best possible comparable.
- Forgetting holding costs such as taxes, insurance, utilities and loan interest.
- Running out of cash between draws.
Where to start
Before you make an offer, test the deal with the Deal Analyzer, which uses real closed sales to build a value range and a rehab estimate. Then talk to a loan officer about your specific numbers.