Fix-and-Flip Loans: The Beginner’s Complete Guide to Financing Your First Rehab

The house is priced below market. The bones are good. The rehab is manageable. The only thing standing between you and a profitable flip is the financing — and if you don’t know how fix-and-flip loans work, that gap can cost you the deal or the profit margin.

This guide covers everything a first-time or early-stage house flipper needs to know: how fix-and-flip loans are structured, how draw schedules work, what lenders actually care about, and how to run your numbers before you ever make an offer.

What Is a Fix-and-Flip Loan?

A fix-and-flip loan is a short-term, asset-based loan that finances both the purchase and the rehabilitation of a residential property intended for resale. These loans are almost always provided by private lenders, hard money lenders, or specialty fix-and-flip lending platforms — not banks. They’re designed to fund deals quickly, underwrite to the After Repair Value (ARV) of the property, and get out of the deal when you sell.

The Core Fix-and-Flip Loan Structure

Loan Component	Typical Terms
Loan Term	6 – 18 months
Interest Rate	9.99% – 14%+ (current market)
Origination Fee	1.5 – 3 points (% of loan)
Loan-to-ARV (LTARV)	Up to 70% – 75% of ARV
Loan-to-Cost (LTC)	Up to 85% – 90% of total cost
Draw Schedule	Interest-only; rehab funds released in draws
Credit Score	Minimum 620 (lower on some programs)
Down Payment	10% – 20% of purchase price

Understanding the After Repair Value (ARV)

ARV is the single most important number in a fix-and-flip deal. It’s the lender’s appraiser’s opinion of what the property will be worth after all renovations are completed — based on comparable sales (comps) in the immediate market area. Because lenders typically loan up to 70%–75% of ARV, this number directly determines your maximum loan amount.

Before you make an offer on a flip, run your ARV three ways:

• Pull your own comps from MLS data (or the MLS via your realtor) — look for sold properties within 0.5 miles, same age/style, in the last 90 days
• Get a broker price opinion (BPO) from a local agent who knows the submarket cold
• Use a third-party service like PropStream or BatchLeads to cross-check your analysis

The conservative ARV — not the optimistic one — is the number your lender will use.

How Draw Schedules Work

One of the most misunderstood aspects of fix-and-flip financing is that the rehab budget is not funded upfront. It’s disbursed in draws — installments of the construction budget released as work is completed and verified by an inspector.

A Typical Draw Schedule Looks Like This:

Draw	Milestone	% of Rehab Budget Released
Initial Draw	Closing / mobilization	0% – 10% (varies by lender)
Draw 1	Demo, rough framing, rough plumbing/electric	25%
Draw 2	Insulation, drywall, HVAC rough-in	25%
Draw 3	Flooring, cabinets, trim, fixtures	25%
Draw 4	Final inspection, punch list complete	15%

To request a draw, you submit photos, receipts/invoices, and a draw request form. The lender sends an inspector (or uses a third-party inspector service) to verify the work is complete and matches the budget line items. Inspection fees ($150–$300 per draw) are typically paid by the borrower.

Critical insight: You pay interest on drawn funds, not the full loan balance. If you have $100K in rehab reserves that haven’t been drawn, you’re not paying interest on them. This makes it important to draw carefully and on schedule.

The 70% Rule: Your Quick Underwriting Shortcut

Experienced flippers use the 70% Rule as a quick deal filter before doing a full analysis. The rule states: you should not pay more than 70% of ARV minus repair costs for a flip property.

Maximum Purchase Price = (ARV × 0.70) – Estimated Repair Costs

Example: ARV = $300,000. Repairs = $50,000. Max purchase price = ($300K × 0.70) – $50K = $160,000.

This rule builds in your profit margin, financing costs, and transaction costs (agent commissions, title, holding costs). It’s a rough filter, not a substitute for a full deal analysis, but it keeps you from overpaying in a competitive market.

Building Your Rehab Budget: The Beginner’s Framework

Lenders require a detailed scope of work and budget before approving a fix-and-flip loan. Here’s a category-by-category framework for estimating rehab costs:

• Demo and site work: $1,500 – $5,000
• Foundation and structural: $2,000 – $20,000+ (get a structural engineer for unknowns)
• Roof: $8,000 – $25,000 depending on size and material
• HVAC (full system replacement): $6,000 – $14,000
• Plumbing: $3,000 – $15,000 (full re-pipe is the high end)
• Electrical (full panel upgrade + rewire): $5,000 – $20,000
• Kitchen (mid-range renovation): $15,000 – $35,000
• Bathrooms (per bath, mid-range): $8,000 – $18,000
• Flooring (LVP throughout, ~1,500 SF): $5,000 – $12,000
• Paint (interior + exterior): $4,000 – $8,000
• Windows, doors, landscaping: $3,000 – $10,000

Always add a 15%–20% contingency on top of your itemized budget. Experienced flippers don’t see contingency as waste — they see it as the cost of not losing money.

Finding and Managing Contractors

Your contractor relationship can make or break a flip. Before you finance a deal, have your general contractor (GC) walk the property and provide a written, itemized bid. Use these practices to protect yourself:

• Never pay more than 10% upfront: A reputable GC doesn’t need 50% before demo begins. Tie payments to draw schedule milestones.
• Get lien waivers with every payment: A mechanic’s lien from an unpaid subcontractor can cloud your title and halt your sale.
• Check licenses, insurance, and references: Your lender will likely require proof of contractor insurance. You should require it regardless.
• Use a written contract: Scope, timeline, payment schedule, and change order process must be in writing before any work begins.

Your First Flip: A Sample Deal Analysis

Item	Amount
Purchase Price	$185,000
Estimated Rehab	$55,000
Total Project Cost	$240,000
After Repair Value (ARV)	$330,000
Fix-and-Flip Loan (75% of ARV)	$247,500
Origination Fee (2 pts)	$4,950
Interest (9 months @ 11%)	$22,913
Selling Costs (6%)	$19,800
Net Profit (est.)	~$37,800

This simplified model shows why ARV accuracy, rehab budget control, and speed-to-sale are the three variables that drive profitability. A $10,000 swing in any direction changes your net profit by 25%+ on a deal like this.

Ready to Finance Your First Flip?

Lender Tribune works with fix-and-flip lenders who specialize in first-time flippers, experienced investors, and high-volume operators. Get a same-day loan quote by submitting your deal details.