A fix and flip loan is short-term financing used to buy a property, renovate it and sell (or refinance) it. If you have never used one, the structure can feel different from a regular mortgage. Here is how it works.
How the loan is sized
Fix and flip lenders look at the deal, not just the borrower. The key numbers are:
- Purchase price — what you are paying for the property.
- Rehab budget — the cost of the renovation.
- After-repair value (ARV) — what the finished property should be worth.
Lenders commonly size a loan by comparing the total loan to the purchase-plus-rehab cost (loan-to-cost) and to the ARV (loan-to-value), then apply limits based on your experience and credit.
How draws work
The purchase portion is funded at closing. The rehab portion is typically held back and released in draws as work is completed. You finish a phase, request a draw, the lender verifies progress (often with an inspection), and funds are released. This protects both you and the lender and keeps the project moving.
What it costs
- Interest. Payments are commonly interest-only during the term.
- Origination points. A percentage of the loan paid at closing.
- Closing and draw fees. Title, appraisal, inspection and administrative costs.
- Holding costs. Taxes, insurance and utilities while you renovate.
Exact costs depend on the deal and the borrower, so ask for an itemized estimate. Our fix and flip calculator helps you test the profit after financing costs.
How long is the term?
Fix and flip loans are short-term — commonly around a year, sometimes with extension options. Be realistic about your timeline: permits, contractors and weather can all run long.
Plan your exit
Before you borrow, know how you will pay it back:
- Sell the finished property, or
- Refinance into long-term financing such as a DSCR loan if you will keep it as a rental.
Tips for a smoother flip
- Get detailed contractor bids and add a buffer for surprises.
- Be conservative on ARV — use real comparable sales.
- Understand exactly what each draw requires.
- Talk to your lender early about timeline and extension options.