Fix and flip loans are short-term, asset-based financing products that cover both the purchase price and renovation costs of a distressed or undervalued property. Instead of scrutinizing your tax returns, lenders look at the deal itself: the property's value, your renovation plan, and your exit strategy.
This guide breaks down how these loans work, the different types available, what it takes to qualify, real cost expectations, and the mistakes that quietly kill flip profits.
Key Takeaways
- Fix and flip loans run 6–18 months and fund on deal economics, not personal income
- Coverage typically includes 80–90% of purchase price plus rehab funds released in draws
- Rates commonly range from 7-15%, with 1-3 points in origination fees
- The 70% rule caps your max offer at 70% of ARV minus repair costs
- Backup exits, such as a DSCR refinance, protect you if the market slows
What Is a Fix and Flip Loan and How Does It Work?
A fix and flip loan is short-term financing, typically 6-18 months, designed for investors who buy, renovate, and resell distressed or undervalued properties. Unlike a 30-year mortgage, these loans are built for speed and flexibility, not long-term homeownership.
Approval is asset-based. Lenders care far more about the property's after-repair value (ARV) and the deal's overall economics than about your W-2s or tax returns. That underwriting approach is the opposite of conventional lending.
The Two-Part Loan Structure
Most fix and flip loans break into two pieces:
- Initial advance - covers 80-90% of the purchase price
- Rehab holdback - released in draws as renovation milestones are completed and inspected
Lenders don't hand you the renovation budget upfront. You complete work, submit for inspection, and the lender releases funds for that phase. The draw process protects their collateral while keeping your project funded.
The Metrics That Matter
Three numbers drive every fix and flip approval:
- Loan-to-Value (LTV): Loan amount divided by current property value
- Loan-to-Cost (LTC): Loan amount divided by total project cost (purchase + rehab)
- After-Repair Value (ARV): Estimated market value once renovations are complete
Example: A property costs $200,000, needs $50,000 in repairs, and will sell for $325,000 after renovation. Your total project cost is $250,000.
At an 85% LTC, the lender finances $212,500 of that total. The $325,000 ARV sets the ceiling for how far the lender will stretch.
Most fix and flip loans carry interest-only payments, with a balloon payment due when you sell or refinance. That keeps monthly carrying costs manageable while you're mid-renovation.
Why Traditional Mortgages Don't Work for Flips
Conventional lenders like Fannie Mae and Freddie Mac generally won't finance properties with significant deferred maintenance or structural damage until repairs meet a minimum condition standard.
Closing timelines stretch 45-60 business days, compared to 7-10 days for hard money. That gap prices you out of competing with cash buyers on distressed inventory.
Types of Fix and Flip Financing Options
Not every investor needs the same financing tool. Here's how the major options compare.
| Option | Speed | Best For | Key Risk |
|---|---|---|---|
| Hard money loans | 7-10 days | Most flippers | Higher rates (7-15%) |
| HELOC / home equity | Moderate | Investors with home equity | Puts personal residence at risk |
| Business line of credit | Fast, revolving | Experienced, multi-project investors | Requires established credit history |
| Seller financing | Varies | Buyers who don't qualify traditionally | Depends entirely on seller terms |
| 401(k) loan | Fast, self-funded | Investors with retirement savings | Default triggers taxes and penalties |
Hard money loans are private, asset-based loans offering fast closings with flexible credit requirements, though you'll pay for that speed and flexibility through higher rates.
Home equity loans and HELOCs tap into equity you've already built in a primary residence, often at lower rates than hard money. The catch: your home becomes collateral, which is a real risk if the flip goes sideways.
Business lines of credit work as revolving capital, ideal for experienced investors juggling multiple projects at once. First-time flippers rarely qualify.
Seller financing works when the owner agrees to hold a note instead of requiring full third-party financing. Terms depend entirely on what the seller will accept.
401(k) loans generally cap at 50% of your vested balance or $50,000, whichever is less, and must be repaid within five years. Default usually means the balance is treated as a taxable distribution, plus a 10% early-withdrawal penalty.
Quick fit guide:
- First-time flipper → Hard money loan
- Have home equity → HELOC (if comfortable with the risk)
- Running multiple projects → Business line of credit
- Can't qualify elsewhere → Seller financing or 401(k) loan
How to Qualify and Get a Fix and Flip Loan
Getting approved comes down to preparation and matching your deal to the right lender.
- Build your scope of work and projections. Document estimated ARV, a detailed renovation budget, and a realistic timeline. Lenders want to see you've done the homework, not just guessed at numbers.
- Understand qualification thresholds. Expect credit score minimums, down payments typically in the 10-20% range, and leverage that often scales with your track record as an investor.
- Compare lenders carefully. Look beyond the headline rate. Evaluate LTC, LTARV caps, draw schedules, and total fees before signing anything.
- Submit your application. This typically includes property details, entity documents (if closing in an LLC), and proof of funds to cover closing costs.
- Close, draw, and repay. Once closed, you'll request draws as renovation milestones complete, then repay the loan at resale or refinance.
When your file is ready, a specialist network can match the deal to the right fix-and-flip program faster than shopping lenders one by one.
Kingdom Capital Financial's network of investor loan partners includes specialists in fix-and-flip and construction lending. Partners structure financing around the deal itself, often without tax returns, and apply flexible credit thresholds for qualifying investors.
Closing timelines through the network generally run 2-6 weeks, depending on how quickly you supply documentation.
Fix and Flip Loan Costs, Rates, and Monthly Payments
Rates on fix and flip loans typically run 7-15%, according to industry data from the American Association of Private Lenders. What moves you up or down that range:
- Credit score - stronger credit generally means better pricing
- Experience - a track record of completed flips reduces perceived risk
- Leverage - higher loan-to-cost means a higher risk premium
Fees to Budget For
Beyond interest, expect:
- Origination fees: typically 1-3 points (1-3% of the loan amount)
- Underwriting/processing fees: flat fees to evaluate and close the loan
- Draw fees: charged each time you request a rehab disbursement, often tied to inspection costs
How Monthly Payments Work
Most fix and flip loans are interest-only. Your monthly payment equals outstanding principal times the annual rate, divided by 12.
A $200,000 loan at 10% costs roughly $1,667 per month. There is no principal reduction—only carrying cost until you sell or refinance.
That payment stacks with your rehab budget. Renovation spend varies widely by scope and market, so get local contractor bids instead of national per-square-foot averages. Lenders size draws and reserves from those figures.
The 70% Rule and Calculating Your Flip Budget
The 70% rule is the fastest gut-check for whether a deal makes sense:
Maximum offer = (ARV x 70%) - Estimated Repair Costs
Worked example: A property has an ARV of $300,000 and needs $40,000 in repairs.
- $300,000 x 0.70 = $210,000
- $210,000 - $40,000 = $170,000 maximum offer
Why 70% and not 100%? That remaining 30% margin covers:
- Holding costs (interest, taxes, insurance, utilities)
- Financing costs (origination fees, points)
- Selling costs (agent commissions, closing costs)
- Your actual profit
According to ATTOM's 2025 year-end flipping report, gross profit margins have thinned to their lowest levels since 2008, with rehab and holding costs eating up 20-33% of ARV in many cases. The 70% rule exists precisely to protect against that margin compression.
Common Fix and Flip Mistakes to Avoid
Even experienced investors get burned by these recurring errors:
- Overestimating ARV using active listings instead of recently sold comps. Active listings reflect what sellers hope to get, not what buyers actually paid.
- Underestimating renovation costs without building in a 10-15% contingency buffer for surprises like hidden water damage or outdated wiring.
- Ignoring holding costs such as interest, taxes, insurance, and utilities that quietly erode profit over a multi-month project, especially if the timeline slips.
- Skipping a backup exit strategy when the property doesn't sell quickly. Refinancing into a longer-term DSCR loan can prevent a forced, discounted sale.
That last point matters more than most investors realize. The average flip in 2025 took 163 days from purchase to resale, according to ATTOM's data. Markets shift in that window. A ready refinance path protects your downside when timelines stretch.
Frequently Asked Questions
How do I get a fix and flip loan?
Prepare a scope of work and ARV estimate, compare asset-based lenders on rate and terms, then submit property and borrower details for a term sheet. Most lenders, including Kingdom Capital Financial's network, prioritize the deal over your personal financial history.
How much will my monthly payment be on a fix and flip loan?
Most fix and flip loans are interest-only, so your payment depends on the loan amount and rate, typically in the 7-15% range. Research current lender quotes for your specific deal size to get an accurate number.
How much does it cost to flip a 1,500 sq ft house?
Renovation costs vary widely by scope and region, from cosmetic updates to full gut jobs. Get contractor bids for your specific property rather than relying on general per-square-foot estimates, which aren't reliable across markets.
Can I get a $100,000 SBA loan?
SBA loans serve business acquisition, refinancing, and expansion rather than short-term property flips. Kingdom Capital Financial can help business owners arrange SBA financing through its lending network when those needs fit.
What are the requirements to qualify for an asset-based loan?
Lenders focus on the property's value and ARV, along with credit history, liquidity, and a credible exit strategy. Down payments typically fall in the 10-20% range, though specifics vary by lender and deal.
What is the 70% rule in flipping houses?
Maximum offer equals 70% of the after-repair value minus estimated repair costs. It's a quick screening tool to make sure enough margin remains for holding costs, financing costs, and profit.
