Fix and Flip Loans Explained: Rates, ARV, and Approval Requirements
Quick Answer
A fix and flip loan is a short-term real estate loan used to purchase and renovate a property before selling it. Most lenders typically offer up to 75% of ARV, up to 90% of purchase price, rehab funds released through construction draws, and loan terms between 6-24 months.
Table of Contents
What Is a Fix and Flip Loan?
A fix and flip loan is a short-term real estate loan used to purchase and renovate a property before selling it for profit. These loans are sometimes called hard money loans or rehab loans.
Most lenders typically offer:
- Up to 75% of ARV
- Up to 90% of purchase price
- Rehab funds released through construction draws
- Loan terms between 6-24 months
These loans are designed for speed and flexibility. They are commonly used by investors renovating distressed properties that traditional banks will not finance.
How ARV Drives Loan Sizing
Traditional banks lend based on current property value. Fix and flip lenders use the after repair value (ARV) — what the property will be worth after renovations are complete.
This approach allows investors to borrow based on the future value of the project, often covering both the purchase price and rehab costs within a single loan.
For a detailed breakdown of how ARV, LTV, and LTC interact, see LTV vs LTC vs ARV LTV: Understanding Real Estate Loan Leverage.
Step-by-Step Loan Process
- Find an undervalued property with profit potential after renovation
- Estimate ARV using comparable sales analysis
- Create a detailed rehab budget with line-item pricing
- Submit the deal to a lender with all required documentation
- Loan closes and purchase portion funds immediately
- Rehab funds released through draws as work is completed and inspected
- Property is sold or refinanced and the loan is repaid
What You Need Before Applying
Having these items ready speeds up the approval process significantly:
- Purchase contract with the property seller
- Scope of work detailing every renovation task (use this template)
- Rehab budget with contractor bids supporting each line item
- Comparable sales showing recent renovated home sales near the subject property
- Contractor bids from licensed, insured contractors
- Insurance quote for a builder's risk or vacant property policy
How Rates and Leverage Are Determined
Your rate and maximum loan amount depend on several factors:
Experience Level
Lenders categorize borrowers into experience tiers. More completed projects means better rates and higher leverage.
Credit Score
Higher FICO scores unlock the best pricing. Most lenders have tiers at 660, 680, 700, and 720+.
Deal Quality
A strong deal with conservative ARV estimates and realistic budgets can offset limited experience or lower credit scores.
Property Type
Single-family homes in strong markets get the best terms. Multi-family, rural, and unique properties may have adjusted pricing.
Example Loan Calculation
| Item | Amount |
|---|---|
| Purchase price | $200,000 |
| Rehab budget | $60,000 |
| Total project cost | $260,000 |
| ARV | $350,000 |
Loan sizing (75% ARV): $262,500
This covers the full purchase price plus a significant portion of the rehab budget. The investor brings the remaining equity to closing.
For a more detailed walkthrough of this math, see ARV vs Purchase Price: How Lenders Calculate Your Maximum Loan.
How the Draw Process Works
Rehab funds are not given upfront. They are held in a reserve account and released in stages:
- Complete a phase of renovation
- Submit a draw request with photos and documentation
- Lender orders an inspection to verify work completion
- Draw is approved and funds are disbursed
This process protects both the lender and borrower. For a deeper look at how draws work, read Construction Draw Schedules Explained.
Planning Your Exit Strategy
Every fix and flip loan requires a clear exit strategy — how you plan to repay the loan:
- Sell the property for profit on the open market
- Refinance into a long-term loan and keep as a rental
Your exit strategy affects loan approval, term length, and pricing. Read more about choosing the right approach in Flip Exit Strategy: Sell or Refinance.
Common Mistakes to Avoid
- Overestimating ARV without strong comparable sales support
- Underestimating rehab costs by skipping contingency budgets
- Ignoring holding costs that accumulate every month the project is open
- Submitting incomplete applications that slow down approvals
- Starting without a clear exit plan for repaying the loan
For a complete list of issues that get applications denied, see Fix and Flip Loan Deal Killers.
Related Reading
Key Takeaways
- ✓Fix-and-flip loans are short-term project loans designed for speed
- ✓ARV (after repair value) is the primary driver of loan sizing
- ✓Rehab funds are released through a draw process after inspections
- ✓Exit strategy must be clear before loan approval
- ✓Experience and credit score directly impact your rates and leverage