Fix and flip loans are purpose-built for real estate investors who buy distressed properties, renovate them, and sell for a profit. Unlike traditional mortgages designed for long-term homeownership, these short-term bridge loans align with the unique timeline and economics of a flip project—providing both acquisition funding and renovation capital in a single loan. For investors looking to break into flipping or expand an existing renovation business, understanding bridge financing is the critical first step to structuring profitable deals and scaling with confidence.
Whether you are a first-time flipper evaluating your first potential deal or a seasoned investor managing multiple projects simultaneously, the mechanics of fix and flip financing directly affect your cash flow, risk exposure, and ultimately your bottom line. This guide covers everything you need to know: loan structures, qualification requirements, the draw process, how to calculate your returns, and strategies for positioning yourself for the best possible terms.
How Fix and Flip Loans Differ from Traditional Mortgages
Traditional mortgages are designed for buyers who plan to live in a property for years or decades. The entire underwriting framework—income verification, debt-to-income ratios, employment history—is built around the assumption of long-term occupancy and slow, steady repayment. Fix and flip loans operate on an entirely different paradigm, one built for speed, flexibility, and the unique economics of property renovation.
The most fundamental difference is purpose. A conventional mortgage finances a home you intend to keep. A fix and flip loan finances a business transaction—the acquisition, improvement, and sale of an asset for profit. This distinction shapes every aspect of how the loan is structured, underwritten, and repaid.
| Feature | Fix & Flip Loan | Traditional Mortgage |
| Term Length | 6–18 months | 15–30 years |
| Purpose | Renovation and resale | Long-term ownership |
| Payment Structure | Interest-only | Amortizing P&I |
| Renovation Funding | Included in loan | Not typically available |
| Qualification Focus | Property, project, experience | Borrower income / DTI |
| Prepayment Penalty | None | Often applies |
| Closing Speed | 7–14 days typical | 30–45 days typical |
| Income Verification | Not required | Full documentation |
The key advantage for flippers is the all-in-one structure. Instead of piecing together a purchase loan plus a separate construction loan or personal line of credit for renovations, a fix and flip loan wraps both into a single closing with a single set of terms. This simplifies the transaction, reduces closing costs, and ensures renovation funds are available from day one—so you can start working immediately after closing.
Another critical distinction is how qualification works. Traditional lenders want to see stable W-2 income, low debt-to-income ratios, and years of employment history. Fix and flip lenders care about three things: the quality of the deal, the strength of the property, and your experience as an investor. This means self-employed investors, retirees, and career-changers can access fix and flip financing even when they would struggle to qualify for a conventional mortgage.
Fix and Flip Loan Structure: How the Financing Works
A typical fix and flip loan finances two components simultaneously: the property acquisition and the renovation budget. Understanding how each piece works is essential for structuring deals effectively, managing cash flow during the project, and avoiding the most common mistakes that trip up newer investors.
Acquisition Financing
The acquisition portion of your loan covers the purchase price. Most programs finance 80–90% of the purchase price, meaning you will bring 10–20% as a down payment at closing. For experienced flippers with strong track records—typically six or more completed projects—some programs offer up to 90% loan-to-purchase or even higher in select cases. The down payment requirement ensures you have meaningful capital at risk, which aligns your incentives with the lender’s and demonstrates financial commitment to the project.
Renovation Financing and the Construction Holdback
The renovation portion is held in a construction holdback account at closing. These funds are not disbursed upfront—instead, they are released in draws as you complete phases of the renovation. Most programs finance up to 100% of the renovation budget, though the total loan amount (acquisition plus renovation) is capped by the after-repair value.
For example, if you are purchasing a property for $200,000 with $75,000 in planned renovations, your loan might look like this:
- Acquisition funding at closing: $180,000 (90% of purchase price)
- Renovation holdback: $75,000 (100% of rehab budget)
- Total loan amount: $255,000
- Your cash at closing: approximately $20,000 down payment plus closing costs and reserves
An important detail that many newer investors overlook: the entire loan amount, including the construction holdback, may accrue interest from closing day. Even though you have not received the renovation funds yet, you are paying interest on them. This is why project timeline management is critical—every extra month of renovation increases your carrying costs and directly reduces your profit margin. A project that was profitable on a four-month timeline can become marginal at six months and unprofitable at eight. This varies by lender, with some offering “non dutch escrows – where interest is only paid on money used – for experienced investors and/or larger projects.
Key Program Parameters at a Glance
| Parameter | Typical Range |
| Loan-to-Purchase (LTP) | 80–90% of purchase price |
| Renovation Financing | Up to 100% of rehab budget |
| Max Loan-to-ARV (LTARV) | 65–75% of after-repair value |
| Loan Term | 12–24 months (12 most common) |
| Interest Rates | 9–13% depending on experience/leverage |
| Origination Points | 0–3 points |
| Minimum Credit Score | 620–660+ (better terms at 680+) |
| Prepayment Penalty | None |
The 70% Rule: Foundation of Every Smart Flip Analysis
Before applying for a fix and flip loan—and often before even touring a property—every experienced investor runs the numbers using the 70% rule. This formula determines the maximum you should pay for a property to maintain a healthy profit margin after accounting for all costs most beginners underestimate or forget entirely.
Maximum Purchase Price = (After-Repair Value × 70%) – Renovation Costs
The 30% buffer in this formula is not arbitrary. It accounts for acquisition closing costs (2–3% of purchase price), loan origination fees and points (1.5–3 points), holding costs throughout the project (monthly interest, property taxes, insurance, utilities), selling costs when you list the property (5–6% in agent commissions plus 1–2% in seller closing costs), and your target profit margin. When these costs are stacked together, they typically consume 25–35% of the after-repair value, which is why the 70% threshold works as a reliable screening tool.
Here is a practical example of the 70% rule in action:
- After-repair value (ARV): $350,000
- Maximum all-in cost (70% of ARV): $245,000
- Estimated renovation budget: $60,000
- Maximum purchase price: $185,000
- If you acquire at $180,000: total project cost approximately $240,000
- Expected gross profit before holding and selling costs: approximately $110,000
- Estimated net profit after all costs: $40,000–$55,000
Lenders also use LTARV (loan-to-after-repair-value) as a key underwriting metric. If your total loan amount exceeds 70–75% of the ARV, you will need to bring additional cash to closing or find a property with better economics. A strong appraisal supporting your ARV estimate is essential to maximizing your leverage and minimizing your out-of-pocket capital.
The discipline of applying the 70% rule consistently is what separates profitable flippers from those who chase deals that look good on the surface but fail to deliver returns once all costs are accounted for. Experienced investors walk away from deals that do not meet this threshold, no matter how attractive the property looks.
The Draw Process: How Renovation Funds Are Released
If the bridge loan is the engine of a flip project, the draw process is the fuel delivery system. Understanding how draws work helps you plan cash flow, manage contractor relationships, and keep your project on schedule and on budget. Mismanaging the draw process is one of the most common reasons newer flippers experience cash flow crunches mid-project.
How the Draw Process Works Step by Step
- You complete a defined phase of renovation work (demolition, rough-in, drywall, finishes, etc.) as outlined in your approved scope of work.
- You submit a draw request to your lender with documentation: photos of completed work, receipts for materials, and any required contractor invoices or lien waivers.
- The lender orders a third-party inspection to verify the work has been completed to standard and matches the approved scope. Some lenders use desktop inspections for smaller draws and in-person inspections for larger ones.
- Once the inspection is approved, the lender releases funds from the construction holdback—typically within 24 to 72 hours of approval, depending on the lender and transfer method.
Typical Draw Schedule Structure
| Draw | Milestone | % of Budget | Example ($80K) |
| 1 | Demolition, hazmat abatement, rough framing | 20–25% | $16,000–$20,000 |
| 2 | Rough electrical, plumbing, HVAC | 20–25% | $16,000–$20,000 |
| 3 | Insulation, drywall, flooring, cabinets | 25–30% | $20,000–$24,000 |
| 4 | Fixtures, appliances, paint, landscaping, punch list | 20–30% | $16,000–$24,000 |
Best Practices for Smooth Draw Management
- Document everything from day one with timestamped photos—before, during, and after each phase of work
- Submit draw requests immediately upon completing each milestone to minimize the gap between spending and reimbursement
- Maintain organized digital files of all receipts, invoices, and contractor lien waivers in a shared folder
- Communicate proactively with your lender’s draw department about any timeline changes, scope adjustments, or unforeseen issues
- Keep a cash reserve equal to at least one full draw amount to bridge the gap between completing work and receiving disbursement
- Negotiate payment terms with contractors that align with your draw schedule—many experienced subs will work on draw-aligned billing
The most common cash flow challenge for newer flippers is the timing gap between completing work and receiving funds. Plan for five to ten business days between submitting a draw request and receiving the disbursement. This means you need enough working capital to pay contractors and purchase materials for the current phase while waiting for the previous draw to arrive. Experienced investors often maintain a dedicated operating account with sufficient liquidity to cover this gap without interrupting the renovation schedule.
Experience Tiers: How Your Track Record Affects Your Loan Terms
Most fix and flip lenders categorize borrowers by experience level, with progressively better pricing, higher leverage, and more streamlined underwriting available to proven operators. Understanding where you fall in these tiers helps you set realistic expectations for your terms and identify what you need to do to unlock better pricing on future deals.
Entry Level: Zero to Two Completed Flips
First-time and newer flippers can absolutely get funded—the industry depends on new investors entering the market. However, expect slightly more conservative terms that reflect the higher risk profile of an unproven operator. You will typically see lower maximum leverage (80–85% of purchase price rather than 90%), higher interest rates (often 100–200 basis points above experienced investor pricing), and the lender may require a more detailed scope of work with contractor bids rather than a self-prepared budget. A practical tip: partnering with an experienced flipper or bringing a licensed general contractor onto your team can significantly strengthen your application and may qualify you for better terms even on your first deal.
Mid-Tier: Three to Five Completed Flips
With a few successful projects documented, you enter the sweet spot where lenders begin rewarding your track record. You will unlock 85–90% of purchase price, more competitive interest rates, and faster underwriting turnaround. At this stage, lenders want to see that you have completed projects on time and reasonably close to budget. Providing a flip resume—a spreadsheet showing property addresses, purchase prices, renovation costs, sale prices, and timelines—makes this documentation straightforward. This tier is where many investors begin running multiple projects simultaneously.
Experienced: Six or More Completed Flips
Seasoned flippers with proven track records access the best available terms across every dimension: maximum leverage, lowest interest rates, reduced origination points, streamlined underwriting with fewer documentation requirements, and the fastest closings. At this level, your relationship with your lender becomes a genuine competitive advantage. A lender who knows your work, has seen your track record, and trusts your execution ability can approve and fund deals faster than any competitor—which means you win more deals in competitive markets where speed matters.
Exit Strategies: Planning Beyond the Renovation
Every fix and flip loan needs a clearly defined exit strategy—your plan for repaying the loan once the renovation is complete. Lenders evaluate your exit strategy as part of the underwriting process, and having a well-articulated plan actually strengthens your application because it demonstrates that you have thought through the entire project lifecycle, not just the renovation.
Exit Strategy 1: Sell the Renovated Property
The classic flip exit and the most common path. Once renovations are complete, you list the property on the MLS, sell to a retail buyer, and repay the bridge loan from sale proceeds. Your profit is the difference between the sale price and your total project costs—acquisition, renovation, carrying costs, and selling costs. The key to a successful sale exit is accurate ARV estimation, quality renovation that appeals to the target buyer demographic, and competitive pricing that generates offers quickly. Every month the property sits on the market after completion adds holding costs that erode your profit.
Exit Strategy 2: Refinance to a DSCR Rental Loan
If the local market softens, rental demand is strong, or you simply decide the property would perform better as a long-term hold, you can refinance your bridge loan into a DSCR (Debt Service Coverage Ratio) loan. This is the foundation of the BRRRR strategy—Buy, Rehab, Rent, Refinance, Repeat. The DSCR refinance pays off your bridge loan, and you hold the property as a cash-flowing rental with long-term fixed-rate financing. American Heritage Lending offers both fix and flip bridge loans and DSCR rental loans, making this transition seamless with a single lender relationship. Having this backup exit strategy is valuable even if you plan to sell—it protects you against market timing risk.
Exit Strategy 3: Request a Loan Extension
If your project runs longer than expected due to permitting delays, contractor issues, weather, or market timing, most programs offer loan extensions for a fee. Extensions typically add three to six months to your term and cost one-half to one point. While not ideal, this option provides critical breathing room and prevents a forced sale at a disadvantageous time. The best practice is to build your initial project timeline with enough buffer that extensions are rarely needed—but knowing the option exists gives you peace of mind.
Three Real-World Flip Scenarios
Scenario 1: The Cosmetic Flip in a Strong Market
You find a dated three-bedroom ranch in a strong suburban neighborhood listed at $180,000. Comparable renovated homes in the area have sold for $275,000–$285,000 within the last 90 days. Your renovation plan is cosmetic: new kitchen with quartz counters and stainless appliances, updated bathrooms with tile and modern vanities, luxury vinyl plank flooring throughout, fresh paint inside and out, and landscaping.
- Renovation budget: $45,000 with 10% contingency ($49,500 total)
- Loan: $162,000 (90% of purchase) + $49,500 rehab holdback = $211,500
- LTARV: 75% ($211,500 / $280,000)—right at guideline limits
- Cash at closing: approximately $25,000 (down payment + closing costs + reserves)
- Timeline: 3 months renovation, 1–2 months to sell
- Projected net profit: $35,000–$45,000 after all costs on roughly five months of work
Scenario 2: The First-Time Flipper with a Strong Team
You have never completed a flip, but you have construction management experience, a licensed general contractor as a partner, and solid cash reserves from your W-2 career. You identify a property at $150,000 with an ARV of $230,000 and $50,000 in renovation needs.
- As a first-timer, expect lower leverage: $127,500 (85% of purchase) + $50,000 rehab = $177,500
- LTARV: 77%—slightly above the 75% cap, so you bring extra cash to reduce the loan amount
- Adjusted loan to hit 75% LTARV: $172,500 (leaves $5,000 less in holdback, covered by your reserves)
- Cash at closing: approximately $30,000–$35,000
- Your GC partner’s track record is considered favorably in underwriting
- Projected net profit: $20,000–$30,000 (lower leverage means more cash in, but still strong return on effort for a learning experience)
Scenario 3: The Heavy Renovation with BRRRR Exit
You acquire a fire-damaged property for $100,000 in a neighborhood where comparable renovated homes rent for $1,800 per month. The ARV is $250,000 and the renovation will cost $90,000, including structural work, new mechanical systems, and a full interior rebuild. You plan to renovate, lease the property, and refinance to a DSCR loan.
- Loan: $90,000 (90% of purchase) + $90,000 rehab = $180,000
- LTARV: 72%—comfortably within guidelines
- Total cash invested: approximately $20,000 down payment + $8,000 closing/carrying costs = $28,000
- After renovation, refinance to DSCR loan at 75% of $250,000 = $187,500
- DSCR refinance pays off the $180,000 bridge balance and returns approximately $7,500 to you
- Monthly rental income of $1,800 covers DSCR loan payment with strong positive cash flow
- Result: you own a $250,000 property with $62,500 in equity, positive monthly cash flow, and most of your original cash back
How to Apply for a Fix and Flip Loan with American Heritage Lending
Getting pre-approved for a fix and flip loan is faster and more straightforward than a traditional mortgage. The process is designed for speed because investors often need to move quickly to win deals in competitive markets. Here is what to have ready and what to expect.
Documentation Checklist
- Property details: address, listing link, and purchase contract (or target criteria for pre-approval)
- Scope of work: detailed renovation budget broken down by trade or category (kitchen, bath, flooring, electrical, etc.)
- ARV support: three to five comparable sales of similar renovated properties within one-half mile, sold within 90 days
- Experience resume: list of prior flip projects with addresses, acquisition costs, renovation costs, sale prices, and project timelines
- Entity documents: LLC operating agreement, articles of organization, and EIN letter (if purchasing in an entity)
- Credit authorization: most programs require a minimum 620+ FICO score
- Proof of funds: recent bank statements showing available cash for down payment, closing costs, and reserves
- Insurance: builder’s risk or renovation insurance quote for the subject property
The Application Process
- Submit your application and project details online at ahlend.com or by calling (855) 340-9892
- Receive a preliminary loan quote and term sheet within 24 hours of complete application submission
- Lender orders a property appraisal to verify as-is and after-repair values (AHL does this in-house most of the time)
- Underwriting reviews the property, project scope, borrower qualifications, and exit strategy
- Receive clear-to-close status—typically 7 to 14 days from application for experienced flippers with complete documentation
- Close at a local title company and receive acquisition funds; renovation holdback is established for future draws
Frequently Asked Questions
How do fix and flip loans work? Bridge loans provide short-term financing lasting six to eighteen months, covering property acquisition at 80–90% of purchase price plus renovation costs up to 100% of the rehab budget. The total loan is capped at 70–75% of the after-repair value. You repay the loan when you sell the property or refinance into a long-term loan. Payments during the loan term are interest-only, keeping your monthly carrying costs predictable and manageable.
What is the draw process for renovation funds? Renovation funds are disbursed in draws as work is completed. After finishing a phase of renovation, you submit a draw request with photos and documentation. The lender orders an inspection to verify the work, then releases funds from the construction holdback—typically within 24 to 72 hours of inspection approval. Most projects involve three to five draws depending on the scope of renovation.
What credit score do I need for a fix and flip loan? Most programs require a minimum FICO score of 620 to 660, with significantly better terms available at 680 and above. Experience-based pricing tiers mean that first-time flippers may pay modestly higher rates than experienced investors, but strong credit helps offset the experience premium and can unlock higher leverage regardless of flip history.
What happens if I cannot sell the property before the loan matures? You have multiple options depending on your situation. You can sell at a reduced price if needed to move the property quickly, refinance to a DSCR rental loan if the property would cash flow as a rental (the BRRRR strategy), or request a loan extension that adds three to six months to your term for a fee of approximately one-half to one point.
Can I use a fix and flip loan for a property I plan to live in? No. Fix and flip loans are exclusively for non-owner-occupied investment properties. If you are looking to buy and renovate a home you will live in, you would need a renovation loan program such as an FHA 203(k) or a conventional renovation mortgage through a traditional residential lender.
How much cash do I need to start flipping houses? For a typical flip, plan on having 10–15% of the purchase price for your down payment, two to three months of carrying cost reserves, closing cost funds (2–4% of loan amount), and enough working capital to float renovation expenses between draws. For a $200,000 purchase, total cash needed is typically $35,000 to $50,000 depending on your experience tier and the renovation scope.