A fix and flip loan is short-term financing for an investor who plans to buy a property, renovate it and sell it. It usually covers part of the purchase and, in many cases, part of the renovation cost. Here is how the process generally works.
What it pays for
Most fix and flip loans fund a portion of the purchase price. Many also include a renovation budget. The lender releases the renovation money in stages, called draws, as work is completed, rather than handing it all over at closing.
How lenders look at the deal
Lenders review the property, the renovation plan and the borrower's experience. They usually consider the purchase price, the cost of the work and the expected value after repairs. A clear budget and a realistic timeline make a file easier to evaluate.
The draw process
- The borrower completes part of the work
- The borrower submits a draw request showing what was done
- The lender confirms progress, often with an inspection or photos
- The lender releases funds for the verified work
How to prepare before you apply
- A contract or purchase agreement for the property
- A line-item renovation budget and schedule
- Entity documents if you will borrow through an LLC
- A short summary of your relevant experience
- Evidence of the funds you will bring to closing
What to plan for
Because these loans are short, plan your exit before you close: a sale, or a refinance into longer-term financing. Build in time for delays, since permits and contractors rarely run exactly on schedule.
Common questions
Do fix and flip loans cover renovation costs?
Many do, usually by releasing funds in draws as work is completed. The structure depends on the lender and the loan.
What if the renovation takes longer than planned?
Talk to the lender early. Terms and extension options vary, so ask about them before you close.