Table of Contents
- How Fix and Flip Loans Work: Rates, Terms, and Draw Schedules
- LTC vs LTV in Real Estate: Which Ratio Drives Your Loan Amount
- Hard Money Lender Requirements: What You Need to Qualify
- Fix and Flip Loan Down Payment: What You'll Actually Pay Upfront
- Closing Costs and Closing Timeline: The Full Breakdown
- Exit Strategy and Risk Mitigation for First-Time Flippers
- Tax Implications of Short-Term Financing
- Conclusion
- Frequently Asked Questions
Last Updated: September 20, 2026
How Fix and Flip Loans Work: Rates, Terms, and Draw Schedules
Fix and flip loans are short-term, asset-based financing for investors who buy distressed property, renovate it, and sell for a profit. This guide from Mayday Private Capital covers what they cost, how lenders size them, and how to qualify in 2026.
Interest Rates, Origination Fees, and Prepayment Penalties
Pricing on fix and flip loans reflects risk, use, and speed. Lenders weigh your credit score, the loan-to-cost ratio, property condition, and exit strategy. Rates sit above conventional mortgages because the lender takes on execution risk, not just credit risk. An origination fee is typically a percentage of the loan amount, deducted at closing.
How the Draw Schedule Controls Your Rehab Budget
A draw schedule releases rehab funds in stages as work is completed and inspected, rather than upfront. Typical draws follow the scope of work: demolition and rough-in, mechanical and electrical, drywall and finishes, then final completion.
LTC vs LTV in Real Estate: Which Ratio Drives Your Loan Amount
LTC vs LTV in real estate comes down to what the ratio is measured against. Loan-to-cost (LTC) measures the loan against total project cost: purchase price plus rehab budget. Loan-to-value (LTV) measures the loan against property value. For a fix and flip, LTC usually drives your loan amount, while LTV is calculated on the after repair value (ARV).
| Ratio | Measured Against | What It Controls | Typical Role in a Flip |
|---|---|---|---|
| LTC | Purchase price + rehab budget | Total loan amount | Primary sizing metric |
| LTV (on ARV) | After repair value | Maximum exposure cap | Secondary constraint |
| LTV (on purchase) | As-is property value | Acquisition financing | Less common for flips |
How Lenders Calculate Your After Repair Value
After repair value (ARV) is the estimated market value once renovations are complete. Lenders calculate it using comparable sales of renovated properties in the same area, adjusted for square footage, condition, and features, anchored by a property appraisal or broker's opinion of value.
Hard Money Lender Requirements: What You Need to Qualify
Hard money lender requirements center on the deal, not just the borrower. Private lenders underwrite the property, renovation plan, and your experience, then layer in credit and liquidity checks, unlike a bank, which leans on documented income and debt service coverage ratio.
Liquidity Requirements and Credit Score Requirements
Liquidity requirements exist so the lender knows you can absorb a cost overrun without defaulting. Lenders typically want reserves covering your down payment, closing costs, and several months of interest. A common mistake is counting retirement accounts you cannot access without penalty as liquid reserves.
Fix and Flip Loan Down Payment: What You'll Actually Pay Upfront
Your fix and flip loan down payment is the gap between what the lender funds and your total project cost, plus closing costs and reserves. That gap is small on a high-use loan and grows fast on a conservative one, and it is negotiated deal by deal.
What you actually pay upfront usually includes:
- The down payment on the purchase and rehab
- Origination fee, typically a percentage of the loan
- Third-party costs: appraisal, title, and inspection
- Interest reserves or a few months of carrying costs
- A contingency reserve for overruns
Closing Costs and Closing Timeline: The Full Breakdown
Closing costs on a fix and flip loan go beyond the down payment, and first-time flippers routinely underestimate them. Compressed into a shorter holding period, they weigh more heavily on your margin than on a 30-year mortgage. Read them in two buckets: lender fees you can negotiate, and third-party fees you mostly cannot.
Lender-side fees are where the negotiation happens:
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Origination fee, a percentage of the loan amount, deducted at closing. It is the largest lender fee and the one most likely to move with a clean deal and a repeat relationship.
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Underwriting or processing fee, a flat charge for reviewing the file, ordering the appraisal, and preparing the draw schedule.
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Draw or inspection fee, charged per draw, not per loan. On a four-draw project this adds up, so ask whether it is per inspection or per release.
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Document preparation, wire, and courier fees, small individually, but they appear on every short-term loan.
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Appraisal or broker's opinion of value, the lender needs an independent value on the as-is condition and the after repair value.
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Title search, title insurance, and escrow, required on virtually every transaction, and priced by the title company, not the lender.
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Recording fees, charged by the county to record the lien.
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Property inspection, often bundled with the draw process, but sometimes billed separately.
Consumer Financial Protection Bureau, mortgage closing costs overview
The practical drivers of a fast close are:
- Entity documents, your LLC operating agreement, EIN letter, and good standing certificate, ready before you apply.
- Liquidity proof, recent statements for the accounts you are actually using, not a summary you assembled.
- Scope of work and budget, a line-item rehab budget the lender can underwrite against.
- Insurance binder, a builder's risk or renovation policy in place before closing.
- Title clarity, no unresolved liens, probate issues, or ownership gaps.
On a fix and flip, every week of delay is a week of holding costs and a week closer to your loan maturity. Treat the closing timeline as a financial variable, not a scheduling detail, and treat the itemized fee sheet as the document you compare, not the headline rate.
Exit Strategy and Risk Mitigation for First-Time Flippers
Exit strategy planning is the part most first-time flippers skip, and it is where deals go wrong. Your exit is how the loan gets repaid: a sale, a refinance into long-term rental financing, or a bridge to a hold. Lenders want a credible path, and a project that runs long needs a fallback. The useful version of "have a plan B" is knowing what it looks like on paper before you close.
The Three Exits, Ranked by What They Require
1. Sale to an end buyer. The cleanest exit, and the one your loan is underwritten against. It requires a finished project, a defensible after repair value, and a market that absorbs your price point. The risk is timing: if the property sits, interest-only payments keep running and your margin compresses weekly.
- Seasoning. Most conventional and portfolio lenders want the property owned and rented for six to twelve months before refinancing based on appraised value rather than purchase price. Your short-term loan has to survive that gap.
- Rent coverage. The refinance lender underwrites rental income against the new mortgage payment. If rent does not cover the payment plus taxes and insurance, the refinance gets cut or declined.
- Appraised value. The refinance is based on the completed, occupied property's appraised value. If your ARV was optimistic, proceeds may not fully retire the short-term loan, and you cover the shortfall in cash.
- Loan-to-value on the refinance. Expect the permanent lender to lend less against value than your private lender did, meaning cash at the refinance table.
Risk Mitigation That Actually Moves the Outcome
Risk mitigation starts with realistic numbers. Budget for renovation costs to run over, build a contingency of at least 10% to 15% of the rehab budget, stress-test your timeline against a slower market, and line up exit options before you close.
- Scope creep. A renovation scope that exceeds your experience or your contractor's capacity. The deal that kills a first flip is rarely a bad market; it is an underestimated rehab.
- Draw-schedule mismatch. Contractors who bill on completion while your lender reimburses on inspection create a cash gap. Match your draw schedule to your contractor's actual billing rhythm.
- Carrying-cost blindness. Interest-only payments feel small until month eight. Model the full holding period, including the months after the project is finished but before it sells.
- Single-exit dependence. If your entire plan assumes a sale at a specific price, you have no plan. The BRRRR fallback is what turns a stalled flip into a rental instead of a default.
The most expensive mistake first-time flippers make is assuming the sale will close on schedule. Build the refinance path into your financing plan from day one, including the seasoning requirement, so a slow market becomes a change of strategy instead of a crisis.
Tax Implications of Short-Term Financing
The tax implications of short-term financing are frequently overlooked in flip guides. Interest, origination fees, and points paid on a fix and flip loan are generally treated as project costs, and their classification depends on whether you flip as a dealer or hold as an investor. That affects whether profit is ordinary income or a capital gain, and the difference can be significant.
Conclusion
The gap between a profitable flip and a break-even one usually comes down to financing terms locked in before you ever swung a hammer: the rate, the draw schedule, the prepayment penalty, and the closing timeline. Getting those right requires a lender who actually reads your deal.
Frequently Asked Questions
Is it hard to get a fix and flip loan?
It depends on the lender and your deal. Hard money lenders focus on the property, the rehab plan, and your experience more than your credit score. A 620 FICO and 10-20% down can be enough with some private lenders. Banks are stricter and often require 25-30% down plus strong income documentation. The key is matching your profile to the right lender type.
How much do you have to put down on a fix and flip loan?
Down payments commonly range from 10% to 25% of the purchase price or the after repair value, depending on the lender and your experience. First-time flippers usually face higher down payment requirements than investors with a track record. Some lenders offer up to 100% financing on select programs, but those typically come with higher rates or stricter qualification criteria.
What are the typical interest rates for fix and flip loans?
Rates vary by lender, loan size, and borrower experience. Hard money lenders generally charge higher rates than banks because they fund based on the asset rather than your tax returns. Most fix and flip loans are interest-only during the rehab period, which keeps monthly payments lower while you renovate. Compare the annual percentage rate, not just the interest rate, to see the full cost.
Who offers fix and flip loans?
Private lenders, hard money lenders, and some specialty finance companies offer fix and flip loans. These lenders underwrite based on the property's after repair value and your project plan rather than traditional income documentation. Some banks offer renovation loans, but approval takes longer and requirements are stricter. Nationwide private lenders can close in 7-10 days on well-prepared deals.