A flip is a math problem: buy low enough, renovate on budget, sell at the after-repair value the comps support. Fix and flip loans are built around that math — one loan funding both the purchase and the renovation budget, underwritten on what the property will be worth rather than the distressed state it's in today. This guide walks through how the product works, what it costs, and how to qualify, whether it's your first flip or your fortieth.
How a fix and flip loan is structured
Two pieces, one close. The purchase portion funds a large share of the acquisition price at closing. The renovation budget goes into a holdback, released through draws as work completes. Total leverage is capped against the after-repair value — commonly around 70-75% of ARV — which is the number that makes distressed-property financing possible at all: a bank appraises the torn-out kitchen; a flip lender underwrites the finished one. Terms run 6 to 18 months, interest-only, with most programs charging interest only on funds actually drawn.
ARV: the number the whole loan hangs on
After-repair value is what the property sells for once your scope of work is complete, supported by comparable sales — same neighborhood, similar size, renovated condition. Lenders verify it independently, so an inflated ARV doesn't get a bigger loan; it gets a declined file. The discipline cuts in your favor: if the deal only works at an ARV the comps don't support, the lender just saved you from your own optimism. Underwrite conservatively — ARV you can defend, budget with contingency, margin that survives surprises.
How draws actually work
Your scope of work gets divided into stages — demo, rough mechanicals, drywall, finish. Complete a stage, request a draw, and the lender inspects (increasingly by app-based photo verification) and releases the funds, typically within days. Two practical implications: you need enough liquidity to float each stage until its draw lands, and clean documentation — permits, invoices, photos — keeps the money moving. Slow draws are almost always paperwork problems, not lender problems.
What fix and flip loans cost
Expect origination points plus an interest rate meaningfully above a conventional mortgage — the price of ARV-based leverage and a two-week close. But price it honestly against the deal: interest-only payments on a hold measured in months, interest accruing only on drawn funds on most programs, and no prepayment penalty on typical flip programs — selling early is the goal, not a violation. Experience moves pricing more than anything else: each completed, documented flip earns better leverage and lower cost on the next one.
Qualifying — including your first flip
The deal leads: purchase price, credible budget, defensible ARV, real margin. Borrower-side, lenders weigh completed-project experience (bring addresses and numbers — it's your resume), liquidity for down payment, closing costs, and reserves, and credit — flexibly, with minimums well below bank thresholds. First-time flippers qualify on strong deals with solid liquidity, typically at somewhat lower leverage; adjacent experience like contracting, real estate work, or rental ownership all help the file. Loans are business-purpose, on non-owner-occupied property, and closing in an LLC is standard. Not all applicants qualify.
The five mistakes that sink flip financing
One: underwriting to a perfect exit — no contingency in the budget, no cushion in the timeline. Two: inflating ARV to force the leverage — lenders check, and the file dies. Three: running out of liquidity mid-project because draws reimburse completed work rather than prepay it. Four: scope creep that turns a cosmetic flip into a gut rehab on a cosmetic-flip budget. Five: not lining up the exit — if the market slows and the flip becomes a hold, a DSCR refinance is the escape hatch, so know your rent numbers before you buy.
If the flip becomes a hold
Markets shift, and good flippers keep both exits open. If selling stops making sense, the finished, rented property can refinance into a 30-year DSCR loan — qualified on the rent, closed in the LLC, paying off the flip loan and converting the project into a cash-flowing rental. That optionality is worth underwriting from day one: a flip that also works as a rental is a deal with two ways to win. Y Millennial Funding offers fix and flip financing and DSCR rental loans — one application, and we help you structure the deal with both exits live. Programs, rates, and availability vary by state and lender. Not all applicants qualify.