Frequently Asked Questions
What does a fix-and-flip loan cover?
Typically the purchase price plus the renovation budget, with rehab funds released in stages as work is completed and verified.
How is the loan sized?
Commonly at the lower of a percentage of after-repair value — often 65 to 75 percent — and a percentage of total project cost.
What is the total-cost constraint?
A limit expressed as a percentage of purchase price plus renovation budget, ensuring you have equity in the project regardless of ARV.
Do I need a scope of work?
Yes, and it should be detailed. Line-item work, materials, finish levels, and costs. Both the lender and the appraiser use it.
How do draws work?
The lender holds the renovation budget and releases it in stages as work is completed and inspected. You typically front each phase before reimbursement.
How many draws are typical?
It varies by lender and project size. More frequent draws mean less capital you need to float, which matters for your working capital.
How fast do draws fund?
Ask this specifically. A lender taking two weeks to release a draw after inspection can stall your contractor and extend your timeline.
Can first-time flippers get financing?
Yes. Experience affects terms, but a realistic budget, clear scope, and credible exit matter more than a long track record.
What down payment is required?
It varies with the structure, often expressed against purchase price or total project cost. Expect meaningful equity contribution.
How long are the terms?
Commonly 6 to 18 months, sometimes with extension options. The term should match your realistic project timeline plus buffer.
What if the project runs long?
Extension fees apply where available. This is the most common way a profitable project becomes marginal, so build realistic timelines.
Do I need contractor bids?
Usually. Lenders want to see that the budget is realistic and supported by actual quotes rather than estimates.
Can I do the work myself?
Some lenders permit owner-builder projects with additional documentation and sometimes tighter draw controls. Others require licensed contractors.
What if renovation costs exceed the budget?
Overruns generally come from your own capital. Lenders fund the approved budget, not cost increases, so build contingency into your own planning.
Can I keep the property instead of selling?
Yes. Many investors refinance into a DSCR loan after renovation and lease-up rather than selling, which is the BRRRR pattern.
Does the exit plan affect the loan?
Yes. A sale exit and a refinance exit are different plans, and the loan should be structured for the one you actually intend.
Are there prepayment penalties?
More often a minimum interest period than a percentage penalty. Confirm before planning a fast exit.
Can I close in an LLC?
Yes. Entity vesting is standard on renovation financing.
What is the biggest underwriting variable?
After-repair value. It drives the loan amount, and a lower ARV than modeled tightens the entire project.
What is the most common failure?
Optimistic ARV combined with an optimistic timeline. Both compress margin, and together they can eliminate it.
