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Fix and Flip Loans: What They Are and Best Options

You can get a fix and flip loan from a variety of sources, but the right option depends on your qualifications and the needs of your real estate project.
By Priyanka Prakash, Randa Kriss
Last updated on September 16, 2022
Edited bySally Lauckner

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A fix and flip loan is short-term financing that real estate investors use to buy and renovate a property in order to resell it for a profit, a process known as house flipping.
These small-business loans are typically used to purchase residential real estate, finance renovations and improvements, as well as cover additional expenses associated with listing and selling the property.

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How does a fix and flip loan work?

Fix and flip loans can be structured in different ways, such as a term loan or line of credit, depending on your lender and financing needs. These loans are typically secured by the property you’re purchasing or renovating.
To determine the amount of funding you’re eligible to receive for your loan, fix and flip lenders use the loan-to-value ratio or after-repair value.
The loan-to-value ratio, or LTV, compares your loan size to the value of the property. The maximum LTV available for fix and flip loans is typically 90%. For example, if you’re buying a $100,000 property, a lender who provides 90% LTV will lend you $90,000. You have to provide the remaining $10,000 as a down payment.
Whereas LTV is often used for standard commercial real estate loans, after-repair value, or ARV, tends to be used more frequently with fix and flip loans. ARV is an appraiser’s estimate of the property’s value after renovations are finished.
For example, if a lender offers 70% ARV, it will lend a maximum of $140,000 on a home that will be worth $200,000 after repairs. You can usually borrow more money from a lender that bases its loan sizes on ARV.

Types of fix and flip loans

Loan type
Best for
Hard money loans.
Borrowers with bad credit or those who can’t secure another form of financing.
Home equity loan or home equity line of credit.
Homeowners who have at least 15% equity in their primary residence.
401(k) loans.
House flippers with established retirement savings who aren’t close to retirement age.
Personal loans.
House flippers with good personal credit who need only a small amount of funding.
Seller financing.
Flippers who need financing quickly and can find a seller to work with them.
Business line of credit.
Experienced flippers looking for flexible financing.

Hard money loans

Hard money loans are nonbank loans from private or online business lenders, such as Finance of America Commercial and Kiavi. Some online crowdfunding platforms offer hard money loans; multiple investors will pool their money to fund your project.
Hard money lenders generally have flexible eligibility requirements and can provide fix and flip loans as quickly as 1-2 weeks.
Repayment terms on these loans can range from six months to three years, depending on the lender, your qualifications and the details of your project. Although hard money lenders will look at your credit and financial history when evaluating your application, they tend to prioritize the potential of your property, making these fix and flip loans a good option for beginners and those with less-than-perfect credit.
As a result, hard money lenders may charge higher interest rates than other fix and flip lenders.

Home equity loan or home equity line of credit

A home equity loan or home equity line of credit can give you access to capital based on the value of your personal residence. A home equity loan, or HEL, offers a lump sum amount of funding, whereas a home equity line of credit, or HELOC, allows you to draw from the credit line — up to the limit — as needed.
To qualify for a home equity loan or line of credit, you should have at least 15% equity in your home, good credit and enough monthly income to afford your mortgage payments and pay off the HEL or HELOC.
Terms on home equity loans generally range from five to 15 years, whereas lines of credit often have repayment terms of 10 to 20 years. The amount you’re able to borrow for a HEL or HELOC will vary based on the value of your home, what percentage of that value the lender will allow you to borrow against and how much you still owe on your mortgage.
Say, for example, you have 30% equity in a $300,000 house. That means you still owe $210,000 on your mortgage. A bank may extend you a maximum loan or credit line of around $45,000.
Home equity loans and lines of credit can offer fix and flip funding with low interest rates, but you’ll have to own a home and be willing to put your personal finances at risk.

401(k) loans

If your retirement plan allows loans, you may choose to use your 401(k) to finance your fix and flip project. This type of funding isn’t a good option for anyone approaching retirement age, but it may be worth considering for younger flippers.
Most employer 401(k) accounts let you take a loan of up to 50% of the balance or $50,000, whichever is less. Solo 401(k) plans for self-employed individuals also allow loans of up to $50,000. You pay interest on the loan, but the money is yours, so you’re paying back the principal and interest to yourself. Typically, 401(k) loans must be repaid within five years.
You can easily be approved for 401(k) financing, but this fix and flip loan option has drawbacks. Pulling money from your retirement fund puts your retirement savings at risk.
For example, if you leave your job, you could be required to pay back the loan amount in full. And if your fix and flip project fails, you’ll have lost that retirement money. You’ll want to weigh the benefits and risks before choosing this financing route.

Personal loans

When you take out a personal loan for your business, it can typically be used for a wide range of purposes, including a house-flipping project. Personal loans have competitive interest rates and terms that generally range from one to seven years.
Compared with other types of business loans, however, personal loans tend to have smaller amounts, maxing out around $50,000. You’ll also need good personal credit to qualify for this type of fix or flip loan. And, if you default on the loan, you could put your personal assets and credit history at risk.

Seller financing

Seller financing, also called owner financing, is when the home's seller acts as the lender. You’ll generally make payments to the seller, with interest, based on a schedule you agree upon. You and the seller will negotiate a price for the cost of the project.
Some sellers will structure the loan with a balloon payment, meaning you’ll make interest-only payments until a certain date. At that point, you’ll have to repay the remainder of the loan or the seller can repossess the property.
You should work with a lawyer to help you draft an official business loan agreement to make sure that you have all the terms and conditions in writing and that there are no misunderstandings between you and the seller.
Seller financing can be a good option if you can’t qualify for other types of fix and flip loans. It can also be a fast financing choice — if you can find a seller who's willing to work with you.
This type of financing may be more expensive because sellers are looking to earn even more from their property by offering you a loan.

Business line of credit

Established house flippers may use a business line of credit to fund projects. A business line of credit gives you access to a specific amount of money that you can draw from as needed. You pay interest only on the funds you use.
Because of the flexibility a business line of credit offers, this type of fix and flip loan is a good option when you’re unsure of how much renovations may cost or how long a renovation may take.
And unlike a HELOC, you don’t have to put up your home to secure a business line of credit. Lenders will look at your credit score, time in business and business financials to determine whether you qualify.
Business lines of credit are available from traditional and online lenders, but banks and credit unions will offer the most competitive rates and terms. You’ll need excellent credit, several years in business and strong financials to get a business line of credit from a bank.

How to get a fix and flip loan

Fix and flip loans can be difficult to access, especially when you’re a beginner in the industry. As you build experience, you’ll have an easier time qualifying for the most competitive loan options.
Here are three steps to get the right fix and flip loan for your business.

1. Understand your financing needs

You should gather all the information about your fix and flip project and create a scope of work and plausible timeline in order to accurately estimate costs. After you have a sense of how much your project will cost, you’ll be able to figure out how much business funding you need.

2. Evaluate your qualifications

Once you have a better sense of how much financing you'll need, you can evaluate your credentials — time in business, annual revenue, personal credit score — to determine what fix and flip loans you’ll qualify for.
If you’re a fix and flip beginner, you’ll likely have to rely more heavily on your personal credit and financial history to access financing. More experienced flippers will be able to use their house-flipping portfolios and business financials to secure a loan.

3. Find the right lender

The best lender for your fix and flip loan will vary depending on the type of financing you need, the details of your project and your qualifications, among other factors. You should research and compare multiple small-business lenders to find the one with the most competitive rates and terms.
It may be helpful to consult with other house flippers to discuss their experience with financing and get recommendations or ask questions about lenders. Ideally, the lender you choose will have experience in the house-flipping industry and will be able to show you examples of work they have done with other borrowers.
Your local Real Estate Investors Association or club may be another good resource for meeting investors and finding access to reliable lending partners.

Compare your business loan options

The best business loan is generally the one with the lowest rates and most ideal terms. But other factors — like time to fund and your business’s qualifications — can help determine which option you should choose. NerdWallet recommends comparing small-business loans to find the right fit for your business.
A version of this article originally appeared on Fundera, a subsidiary of NerdWallet.