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.
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Fix and flip loans can help you turn a run-down property into a profitable resale. But, they come with higher costs, shorter terms and more risk than traditional financing. Understanding how these loans work is key before jumping into a house-flipping project.
What is a fix and flip loan?
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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Fix and flip loans can be structured in different ways, depending on your lender and financing needs. These loans are typically secured by the property you’re purchasing and renovating. Often there’s no penalty if you want to pay off the loan balance early.
How fix and flip lenders structure loans
- Term loan. Lump sum financing with a set repayment period.
- Line of credit. Flexible access to funds that you can draw from as needed.
Repayment terms on these loans are short, typically ranging from six to 24 months.
How lenders determine your loan amount
To determine the amount of funding you’re eligible to receive for your loan, fix and flip lenders may use one or more of the following formulas:
Loan-to-value ratio (LTV)
The loan-to-value ratio compares your loan amount to the value of the property. The maximum LTV available for fix and flip loans is usually up to 90%.
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.
Loan-to-cost ratio (LTC)
The loan-to-cost ratio compares the loan amount to the total cost of the project, which may include:
- Purchase price.
- Renovation costs.
- Miscellaneous expenses.
Example: If your total project cost is $120,000 ($100,000 to purchase the property plus $20,000 to renovate) and a lender offers up to 80% LTC, you’d receive $96,000 in loan funds. The remaining $24,000 would be up to you to provide.
The maximum LTC available depends on the lender, but some offer loans up to a 90% LTC or higher.
After-repair value (ARV)
After-repair value is an appraiser’s estimate of the property’s value after renovations are finished.
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.
» Also consider: Should you use a DSCR loan for your rental property?
Types of fix and flip loans
Here are some of the most common types of fix and flip loans — and when you should consider using each option.
- Best for experienced flippers looking for flexible financing → Business line of credit
- Best for borrowers who prefer a quick option or who can’t secure another form of financing → Hard money loans
- Best for homeowners who have more than 15% equity in their primary residence → Home equity loans and lines of credit
- Best for house flippers with good personal credit who need a relatively small amount of funding → Personal loans
- Best for house flippers with established retirement savings who aren’t close to retirement age and have exhausted other options → 401(k) loans
- Best for flippers who can find a seller willing to work with them and don’t have other financing options → Seller financing
Business lines of credit
Best for: Experienced flippers who want flexible access to funds for ongoing projects.
How business lines of credit work
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 and you only pay interest on the funds you use.
Why it works for fix and flip projects
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.
Qualifications and requirements
Secured business lines of credit require collateral such as property or other assets, whereas unsecured lines of credit don’t. 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.
Hard money loans
Best for: Borrowers who prefer a quick option or who can’t secure another form of financing.
How hard money loans work
Hard money loans are nonbank loans from online or private business lenders, such as Finance of America Commercial and Kiavi. Some online crowdfunding platforms also offer hard money loans where multiple investors pool their money to fund your project.
These loans typically have short repayment terms, ranging from six months to three years.
Why it works for fix and flip projects
Hard money lenders generally have flexible eligibility requirements and can provide fix and flip loans as quickly as one or two weeks. Although they may review your credit and financial history, lenders tend to prioritize the potential value of your property, making this a good option for beginners and those with less-than-perfect credit.
Qualifications and requirements
Some hard money lenders require borrowers to operate up as LLCs, partnerships or corporations. Because of the higher risk, interest rates are typically higher than those charged by traditional lenders that don’t specialize in fix and flip loans.
💡 Nerdy insight
With high interest rates and short repayment terms, hard money loans can be risky. As an alternative, you might look into more traditional term loans from online lenders. These lenders can also offer flexible qualifications and fast access to funds.
Home equity loan or home equity line of credit
Best for: Homeowners who have more than 15% equity in their primary residence.
How home equity loans work
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.
Home equity loans usually have terms ranging from five to 20 years. Home equity lines of credit often include a 10-year draw period followed by a repayment period of up to 20 years. Loan amounts depend on your home’s value, lender’s LTV limits and existing mortgage balance.
Why it works for fix and flip projects
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.
Qualifications and requirements
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.
» MORE: Compare the best HELOC lenders
Personal loans
Best for: House flippers with good personal credit who need a relatively small amount of funding.
How personal loans work
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.
Why it works for fix and flip projects
Personal loans can be a fast and straightforward option for smaller projects, especially if you have good credit and don’t want to use real estate as collateral.
Qualifications and requirements
Loan amounts tend to max out at $100,000 and you’ll need good personal credit to qualify. Because these loans are unsecured, defaulting could put your personal assets and credit at risk.
401(k) loans
Best for: House flippers with established retirement savings who aren’t close to retirement age and have exhausted other options.
How 401(k) loans work
If your retirement plan allows loans, you may choose to use your 401(k) to finance your fix and flip project. 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 there’s no prepayment penalty for repaying the loan early. Typically, 401(k) loans must be repaid within five years.
Why it works for fix and flip projects
401(k) financing is easy to qualify for and can be a good option for younger flippers who can’t access other options.
Qualifications and requirements
Not all retirement plans allow loans — and this type of financing can be risky. 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. Borrowers close to retirement will want to consider other options and in general, you should weigh the benefits and risks before choosing this financing route.
Seller financing
Best for: Flippers who can find a seller willing to work with them and don’t have other financing options.
How seller financing works
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 an agreed schedule. You and the seller will negotiate a price for the cost of the project.
Some sellers may structure the financing as a short-term loan with low initial payments and then a large payment of the remaining balance — often referred to as a balloon payment — at the end of the term. If you can’t repay the remainder of the loan, the seller can repossess the property.
Why it works for fix and flip projects
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.
Qualifications and requirements
Because this type of financing doesn’t include a traditional lender, it can be easy to qualify for. Keep in mind, however, that it may be more expensive because sellers are looking to be compensated for taking on the risk of financing your purchase of their property.
You should also make sure you work with a lawyer to draft an official business loan agreement. This way, you have all the terms and conditions in writing, preventing misunderstandings between you and the seller.
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
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 capital you need.
2. Evaluate your qualifications
Once you have a better sense of how much financing you'll need, 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. Compare lenders
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. 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.
➡️ Next steps
- If you need access to funds that you can tap into repeatedly over the life of your project, consider a business line of credit.
- If you have good personal credit and don't need a large amount of financing, explore the best personal loans for business.
- If you don't want to take out traditional business funding, learn about asking your network for a friend and family loan.
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