Fix and flip loans: short term money to buy and renovate

A fix and flip loan is short term money to buy a property and fund the work on it, underwritten against what the finished house should be worth and what it costs you to get there rather than what it is worth the day you buy it. It is built to be paid off out of a sale or a refinance, which is why the exit gets as much attention as the purchase.

What it is

A fix and flip loan has two parts. The first funds the purchase at closing. The second is a rehab budget the lender commits to but holds back, releasing it in draws as the work gets done. Payments are commonly interest only for the length of the term, which keeps the monthly carry lighter than an amortizing loan would, and the term itself is short, usually measured in months rather than years.

Sizing usually starts with after repair value: an appraiser's opinion of what the finished property ought to be worth once the work you have scoped is done. Most programs lend against a share of that figure, test it against a share of purchase price plus rehab cost, and then work from whichever comes out lower. That makes the scope of work an underwriting document rather than a formality, and a budget submitted as one lump sum tends to invite a cautious opinion of value, which costs you loan dollars you have to cover in cash instead.

The draw process is where first projects most often go wrong. You pay for a stage of work, request a draw with receipts and photographs, someone verifies what is actually finished, and then the money moves. Interest is commonly charged on the drawn balance, though some programs charge on the full commitment from the start, which is worth asking before you sign anything. We walk the draw schedule with you early, because it decides how much cash has to sit standing by, and that figure is usually larger than people budget for.

Who it fits

• Investors buying a property conventional financing typically will not touch in its current condition, such as a house with no working kitchen or one that cannot be occupied as it sits.
• Flippers in a situation where the seller is weighing closing confidence as much as price, and a long financing contingency loses the deal.
• Buyers who plan to renovate and then refinance into long term rental financing rather than sell, where this loan pays for the work and a DSCR loan takes it out.
• Operators whose cash is committed to other projects and who would rather borrow the rehab budget than drain the reserves holding up the rest of the portfolio.

What we will need

• The property address and the purchase contract, or the deal you are chasing if you have not won it yet, plus the entity that will hold title and its operating agreement.
• A line item scope of work with a budget, and who is doing the work, whether that is a licensed contractor or your own crew.
• Your track record on past projects and a rough idea of your credit. Both move pricing and how much a lender will advance.
• Your cash position. Down payment, closing costs, and the money to float each draw and make payments while the house sits empty.
• Your exit. The comparable sales you are underwriting to, and whether the plan is to sell or to refinance when the work is done.

The honest trade

• Pricing runs above long term rental financing and well above full documentation pricing, and most programs add origination cost at closing. Some charge interest for a minimum period too, so paying off early does not always save what you expect.
• The after repair value in the file is the appraiser's opinion, not your projection. If it lands lower than you underwrote, the loan comes down and the cash you bring goes up, and that news tends to arrive late in the process.
• Carrying costs run whether or not work is happening. Interest, taxes, insurance and utilities keep billing through permit delays, a contractor who stops showing up and a market that goes quiet, and a project that runs long can spend its profit on carry.
• The exit is your risk. If the term ends before the house is sold or refinanced, your options are an extension at a cost, a refinance on whatever terms exist then, or a sale at a price you did not plan on. Extensions are common, and no lender is obliged to grant one.

Questions

How does the rehab budget actually get paid out?

In stages, after work is done rather than before. You pay the contractor or the supplier, submit a draw request with invoices and photographs, and the lender commonly sends an inspector, or asks for third party verification, to confirm the stage is complete before funds are released. Then you do it again for the next stage. Many lenders also hold the last draw until the final items are signed off. Plan for the cash to float each stage, and for the days an inspection and a funding take, because the draw schedule rather than the budget sets the real pace of the job.

What is after repair value and who decides it?

It is an estimate of the finished value: what the house ought to sell for once the work in your scope is complete. The lender's appraiser decides it, commonly by reading that scope line by line and then pricing the finished house against recent comparable sales. Your own figure is an input, not the answer. Because sizing leans on that estimate alongside cost, an opinion that comes in under yours shrinks the loan and raises the cash you have to bring, so the scope and the comparables are worth building carefully before the appraisal, not arguing over after the fact.

Is this faster than a conventional loan?

Usually, since most programs do not ask for personal income documentation and the review rests on the property, the scope of work and your experience. Speed is not something anyone should promise you, though, and what slows these files is rarely the lender. It is title surprises, an entity that is not in good standing, insurance nobody ordered, or a scope that arrives as a single total with no line items. Getting those sorted before you are in contract is the part of the calendar that is genuinely yours to control.

What happens if the project runs past the loan term?

Plan for it before you borrow, because it is common enough to belong in the plan rather than in the hoping. An extension is usually the first conversation, and it is the lender's call rather than yours. So the useful work happens early: what the property could refinance into if the sale is slow, what cutting the asking price does to the deal, and how many months of carry you can genuinely fund. Isaiah would rather walk that scenario through with you while it is still hypothetical and your choices are still cheap.