Fix and flip loans are designed to cover the core costs of acquiring and renovating an investment property. However, not every expense is financed, and lenders vary in what they include. Knowing which costs are typically covered helps investors plan their cash requirements and avoid funding gaps during the project.
Purchase Price #
The acquisition cost of the property is the foundation of every fix and flip loan. Lenders finance a percentage of the purchase price based on LTV or LTC guidelines, and the borrower covers the remainder as a down payment.
The amount financed depends on the property’s value, the total project cost, and the lender’s maximum leverage limits.
Renovation Budget #
Most fix and flip loans include funding for renovations. This is typically based on a detailed scope of work and may be verified through contractor bids or internal review.
Renovation funds are usually held in reserve and released in draws as work is completed and inspected. The budget should account for:
- Labor and materials
- Cosmetic updates
- Structural or mechanical repairs
- Permit-related work
Lenders expect the renovation plan to be realistic and supported by line-item detail.
Closing Costs #
Closing costs are part of every real estate transaction, though not all lenders finance them. These may include:
- Origination fees
- Title and escrow charges
- Appraisal and inspection fees
- Attorney or document preparation fees
- Recording fees
Some lenders allow closing costs to be rolled into the loan if there is enough room within LTV or LTC limits. Others require them to be paid out of pocket.
Interest Reserves #
Some fix and flip loans include an interest reserve, which covers monthly interest payments for a set period. This can reduce out-of-pocket carrying costs during renovation.
Interest reserves are more common on larger or longer-duration projects. When included, they are deducted from loan proceeds at closing and applied toward scheduled payments.
What Is Typically Not Included #
Certain costs are generally not financed as part of a fix and flip loan:
- Furniture, staging, or personal property
- Utility deposits or ongoing utility payments
- Property taxes and insurance premiums beyond initial escrows
- Marketing or selling costs
- Contingency buffers unless specified in the scope
Investors should plan to cover these expenses separately.
Why Cost Clarity Matters #
Knowing what is and is not included in the loan helps prevent cash shortfalls mid-project. Investors who underestimate out-of-pocket costs may face delays or difficulty completing renovations on schedule.
Before closing, it helps to request a full breakdown of loan proceeds and confirm which line items are covered.
Summary #
Fix and flip loans typically cover the purchase price and renovation costs, with some lenders also financing closing costs or interest reserves. However, not all expenses are included, and policies vary by lender. Understanding exactly what the loan covers allows investors to budget accurately and keep projects on track from acquisition through resale.