Question 1

What is a fix-and-flip loan?

Accepted Answer

A fix-and-flip loan is short-term financing (typically 6 to 18 months) designed for real estate investors who purchase distressed properties, renovate them, and sell them for a profit. The loan covers both the purchase price and the renovation costs. The borrower makes interest-only payments during the term and pays off the loan when the property sells.

Question 2

How much of the purchase price and renovation costs will a fix-and-flip lender cover?

Accepted Answer

Most fix-and-flip lenders offer up to 90% of the purchase price and 100% of the renovation costs, provided the total loan amount does not exceed 70 to 75% of the after-repair value (ARV). This means the borrower only needs 10% of the purchase price in cash, and the renovation budget is fully funded by the loan.

Question 3

What is ARV (after-repair value) and how is it calculated?

Accepted Answer

ARV is the estimated market value of a property after all renovations are complete. Lenders calculate ARV using comparable sales (comps) of similar properties in the same area that have been recently sold in renovated condition. The lender typically caps the loan at 70 to 75% of ARV to ensure the borrower has enough margin to sell profitably even if market conditions change.

Question 4

What credit score is needed for a fix-and-flip loan?

Accepted Answer

Most fix-and-flip lenders require a minimum credit score of 620, though some accept scores as low as 550. The property's ARV, the borrower's experience with flips, and the renovation budget are more important factors than credit score. First-time flippers may face stricter requirements.

Question 5

How fast can a fix-and-flip loan close?

Accepted Answer

Fix-and-flip loans typically close in 5 to 14 days. Because these loans are asset-based (secured by the property rather than the borrower's income), the underwriting process is faster than conventional financing. Some lenders can close in as little as 3 to 5 days if the property inspection and title work are completed quickly.

Question 6

What are typical interest rates for fix-and-flip loans?

Accepted Answer

Fix-and-flip loan interest rates typically range from 10% to 14%, with origination fees of 1 to 3 points (1 to 3% of the loan amount). While these rates are higher than conventional financing, the short loan term (6 to 18 months) means the total interest cost is manageable relative to the profit potential of a successful flip.

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