Fix-and-flip loans are used by short-term real estate investors to purchase and renovate a property before flipping it for a profit. This type of funding for flipping houses offers investors fast closings for properties in any condition. The most popular type of fix-and-flip loans are hard money loans.
Types of Fix & Flip Loans
Fix-and-Flip Loan | Best For |
|---|---|
Experienced investors with 2 to 3 flips or new investors working with a contractor | |
Investment properties with 30% to 40% equity | |
Primary residences with a min. of 30% equity | |
Investment properties with 30% to 40% equity | |
Transitioning a short-term loan to permanent financing |
The five types of fix-and-flip loans are:
1. Fix & Flip Hard Money Loan
A hard money loan is a short-term loan secured by real estate and used by fix-and-flip investors to purchase and renovate a property. Investors will use hard money loans to purchase, renovate, and sell a property within one year. These loans are ideal for funding a fix-and-flip project since they finance properties in poor condition.
Hard Money Loans at a Glance
Available Financing | Up to 90% of loan-to-cost (LTC); 75% after repair value (ARV) |
Loan Term | 12 months, 18 months, 24 months |
Time to Approval/Funding | 3 minutes to pre-approval; as few as 5 days for funding |
Interest Rates | 6.5% - 12% |
Fees | 0% - 2.5% of loan amount |
Qualifications | 660 minimum credit score All levels of experience encouraged to apply |
Where to Get |
Hard money loans, also referred to as rehab loans, have lower qualifications for approval, helping fix-and-flip investors receive approval and funding in as little as 15 days. Hard money lenders are more focused on the property and its potential value than the borrower’s background.
Who Fix & Flip Hard Money Loans Are Right For
Hard money lenders typically allow experienced fix-and-flip investors with two to three past projects to manage their own renovations, while they may fund new investors who hire a licensed contractor. Regardless of expertise, hard money loan funding can happen in as few as 15 days, making fix-and-flip investors competitive with all-cash buyers.
Fix & Flip Hard Money Loan Rates & Terms
Hard money loan rates are typically higher than conforming loan rates, starting at 7.5%, and have shorter loan terms of one to three years. They can be used to finance renovations as well. Lender fees are taken directly out of the loan, and closing costs are either paid out of pocket or taken directly out of the loan.
Hard money loan rates and terms are:
- Term: One to three years
- Time to funding: Five to 15 days
- Rates: 7.5% to 12%
- Lender fees: 1.5% to 2.5% of loan amount
- Closing costs: 2% to 5% of loan amount
With no prepayment penalty, you can reduce the overall financing costs by paying the loan back early. Monthly interest-only payments are made during the loan and the principal is repaid at the end of the loan term. Hard money loans generally finance 90% of a property’s loan-to-cost (LTC) and 75% of a property’s after repair value (ARV).
Fix & Flip Hard Money Loan Qualifications
Hard money loans often carry minimum qualifications:
- Minimum credit score: 620
- Debt-to-income ratio: 35% to 45%
- Experience: Two to three past rehab project or licensed contractor help for inexperienced fix and flippers
Hard money loans offer easier qualifications compared to other options. However, a credit score of 660 or above is preferred. Borrowers with better credit scores and a longer history of successful fix-and-flip projects are more likely to qualify for lower rates and fees as well as higher borrowing limits.
Where to Find a Fix & Flip Hard Money Loan
Hard money lenders can be found online or in person. Traditional hard money lenders are found offline through industry relationships. Online hard money lenders conduct business over the internet. With online lenders, prequalification takes less than a day and you can receive funding in as few as 15 days. Our hard money lenders directory offers a list of lenders in all 50 states, so you can find one near you.
Kiavi is an online hard money lender that offers competitive rates for prime borrowers, interest-only monthly payments, and no prepayment penalties. It can fund loans in as little as 15 days, and prequalification takes just a few minutes.
2. Fix & Flip Cash-out Refinance
A fix-and-flip cash-out refinance is when investors refinance an existing property, pay off the existing loan, and use the cash proceeds to finance a new property. A cash-out refinance helps fix-and-flip investors use equity from an existing property by issuing a new loan, paying off the existing mortgage, and freeing up equity for other use.
Cash-out Refinance at a Glance
Available Financing | 75% loan-to-value (LTV) |
Loan Term | 15 - 30 years |
Time to Approval/Funding | 30 - 45 days |
Interest Rates | 5.45% - 5.75% |
Fees | 0% - 3% of loan amount |
Qualifications | FICO 660 45% maximum debt-to-income ratio (DTI) 0 - 6 months cash reserves 30% to 40% equity |
Where to Get |
The money borrowed from a cash-out refinance must pay off any existing liens before borrowers can use the remaining balance of the loan proceeds. There are no restrictions on how borrowers spend cash-out refinance money. Fix-and-flip investors can use a cash-out refinance on an owner-occupied home or a non-owner-occupied investment property (up to four units).
Who a Fix & Flip Cash-out Refinance Is Right For
Cash-out refinances are used by real estate investors who have properties with 30% to 40% equity and want to compete with all-cash buyers without turning to hard money. A cash-out refi can only finance up to 75% of the existing property’s loan-to-value (LTV) ratio.
Cash-out refinances are best for:
- Borrowing against an owner-occupied primary residence
- Refinancing a non-owner-occupied investment property
- Properties with at least 30% to 40% equity
- Investors who want to grow their portfolios
Fix & Flip Cash-out Refinance Rates & Terms
The interest rates on a cash-out refi are usually lower than a traditional mortgage because the borrower already has a payment history on a real estate loan. However, since a cash-out refinance is more complicated than a regular bank loan, lenders charge higher fees.
Rates and terms on a cash-out refinance are:
- Term: 15 to 30 years
- Time to approval: 30 to 45 days
- Rates: 5.45% to 5.75%
- Loan origination fees: Up to 5% of loan amount
- Closing costs: 2% to 5% of loan amount
Lenders offer cash-out refinances with 80% LTV on single-family properties and 70% LTV on two- to four-unit buildings. Borrowers need a minimum of 30% to 40% equity in an existing property. With 40% equity, borrowers only have access to 15% of the available equity to use for future purchases.
Fix & Flip Cash-out Refinance Qualifications
Cash-out refinance qualifications are more stringent than with other types of fix-and-flip loans because a cash-out refinance is usually issued by a traditional lender.
Cash-out refinance qualifications include:
- Minimum credit score: 640
- Maximum debt-to-income ratio: 45%
- Cash reserves: Up to six months
- Debt service coverage ratio (DSCR): 1.25
Where to Find a Fix & Flip Cash-out Refinance
Visio Lending offers real estate investors cash-out refinance options that range from 24-month bridge loans to portfolio loans to 30-year rental loans. Rates are competitive for prime borrowers. You can get prequalified online in just a few minutes.
3. Fix & Flip Home Equity Line of Credit
A home equity line of credit (HELOC) works like a credit card. Lenders issue fix-and-flip investors a line of credit based on both the value of their existing home and available equity (must be at least 30% to 40%), and can draw from the credit line over the HELOC term. Just like a credit card, you’ll only pay interest on the amount borrowed until it is repaid.
Home Equity Line of Credit at a Glance
Available Financing | Up to 85% combined loan-to-value |
Loan Term | 25 - 30 years |
Time to Approval/Funding | 30 - 45 days |
Interest Rates | 3.5% - 6.5% variable APR |
Fees | 0% - 2% of loan amount |
Qualifications | 640 minimum FICO 45% maximum debt-to-income ratio 0 - 6 months cash reserves Existing property with at least 30% to 40% equity |
Where to Get |
Unlike a cash-out refinance, a home equity line of credit (HELOC) doesn’t refinance the entire loan, but is a second lien in addition to an existing mortgage. A HELOC can only be issued on an owner-occupied primary residence. There are no restrictions on what a fix-and-flip investor does with the money.
Who Fix & Flip Home Equity Lines of Credit Are Right For
Home equity lines of credit (HELOCs) are only issued on an owner-occupied primary residence and are not typically available on an investment property. The benefits of HELOCs are that they only go into repayment when the line of credit is used and interest doesn’t start accruing until an actual draw is made.
Fix & Flip Home Equity Line of Credit Rates & Terms
A home equity line of credit offers competitive rates starting at 3.5% and a term of 25 to 30 years. The qualifications for this type of fix-and-flip funding tend to be standardized, a minimum FICO score of 640 is generally needed, and the HELOC can only be used on an owner-occupied property.
Rates and terms on a home equity line of credit (HELOC) are:
- Term: 25 to 30 years
- Time to approval: 30 to 45 days
- Rates: 3.5% to 9.5%
- Loan origination fees: 2% of loan amount
- Repayment: Monthly, interest-only for the first five to 10 years; interest and principle for the remaining 15 to 20 years
The maximum loan amount is equal to 85% of a property’s combined LTV, which means the first mortgage and second HELOC combined cannot exceed 85% of a property’s current fair market value. Since a HELOC is considered a second mortgage, borrowers don’t pay closing costs.
Fix & Flip Home Equity Line of Credit Qualifications
HELOCs are only allowed on an owner-occupied primary residence, but borrowers can use the loan proceeds however they wish. You’ll need to meet minimum credit score and equity requirements to qualify.
Home equity line of credit qualifications include:
- Minimum credit score: 640
- Maximum debt-to-income ratio: 45%
- Minimum equity: 30% in existing property
Where to Find a Fix & Flip Home Equity Line of Credit
Home equity lines of credit (HELOC) are available through most national banks and mortgage lenders. If you want to compare lenders, you can visit an online loan marketplace like LendingTree and compare offers from multiple lenders.
4. Fix & Flip Investment Property Line of Credit
An investment property line of credit (LOC) is similar to a home equity line of credit (HELOC), but is borrowed against an investment property, not a primary residence, and works like a HELOC by only paying interest on the money borrowed. This LOC is for short-term cash needs and can be used for both purchases and renovations of fix and flips.
Investment Property Line of Credit at a Glance
Available Financing | Up to 75% loan-to-value (LTV) |
Loan Term | 18 to 24 months |
Time to Approval/Funding | Up to 30 days |
Interest Rates | 6.99% and up |
Fees | 0% - 2% of loan amount |
Qualifications | $75 annual service fee 1% - 5% closing costs |
Where to Get |
An investment property LOC can only be drawn from non-owner-occupied properties. However, it’s possible to get either a single asset investment property LOC or a portfolio investment property line of credit. While you will need to outline how you will use the LOC in the application, you can usually use it for whatever you want once it’s funded.
Who Fix & Flip Investment Property Lines of Credit Are Right For
Investment property lines of credit are right for fix-and-flip investors who want a short-term loan in order to purchase or rehab a property and then flip it and pay off the line of credit. Long-term investors with substantial equity in their property and a high credit score who may be short on cash may also benefit from an investment property LOC.
Fix & Flip Investment Property Line of Credit Rates & Terms
The rates for an investment property line of credit are based on the borrower’s credit score and the investment property, starting around 6.99%. The terms are generally 18 to 24 months. The rates and terms vary from single asset to portfolio LOCs.
Single asset investment property line of credit rates and terms include:
- Term: 18 to 24 months
- Time to approval: Up to 30 days
- Rates: Starting at 6.99%
- Loan origination fees: 1% to 2% or loan amount
- Closing costs: 1 to 5% of loan amount
There are sometimes annual service fees of around $75. Minimum lines of credit on single assets are as low as $25,000, while minimum lines of credit on a portfolio of properties are approximately $1 million. Investment property lines of credit are usually capped at 75% LTV.
Fix & Flip Investment Property Line of Credit Qualifications
An investment property line of credit for a single asset has certain qualifications that a borrower and their property must meet in order to be approved. A portfolio LOC has stricter qualifications than a single asset LOC, scrutinizing the borrower’s overall financial standing. You’ll need to meet equity requirements to qualify.
Investment property line of credit qualifications include:
- Minimum credit score: 660
- Maximum debt-to-income ratio: 45%
- Minimum equity: 30% to 40% in existing property
Where to Find a Fix & Flip Investment Property Line of Credit
Investors can find a fix-and-flip investment property line of credit at their bank, credit union, or with an online lender. A portfolio LOC is a specialty loan product and isn’t usually offered by banks.
CoreVest offers investment property LOCs on both single assets and portfolios. Its lines of credit start at $1 million with competitive interest rates for prime borrowers. You can apply online and will be assigned a personal representative to work with you.
5. Fix & Flip Bridge Loans
A fix-and-flip bridge loan is a temporary loan used to cover the time between two real estate transactions. It’s often used to purchase a new property before selling another property. It allows borrowers to purchase their next fix-and-flip property without having a contingency to sell the other property first or can pay off a hard money loan while a borrower finds permanent financing.
Bridge Loans at a Glance
Available Financing | $50,000 to $2.5M; 85% loan-to-value (LTV), 70% LTV refinance, 65% LTV cash-out |
Loan Term | 12 to 18 months |
Time to Approval/Funding | As few as 15 days |
Interest Rates | Starting at 7.99% |
Fees | $500 appraisal fee 1% - 2% lender fees |
Qualifications | 20% equity A clear exit strategy (sale or refinance) |
Where to Get |
More Details
Who Fix & Flip Bridge Loans Are Right For
Bridge loans are great for investors who need short-term financing to pay off an existing loan while finding permanent financing. They’re also good for having access to cash for the next fix-and-flip project without having sold an existing fix-and-flip property.
Fix & Flip Bridge Loan Rates & Terms
Interest rates are generally lower than hard money loans but higher than permanent bank loans starting at 7.99%. Borrowers can access up to $2.5 million and properties must be non-owner-occupied.
Rates and terms on a bridge loan are:
- Term: 12 to 18 months
- Time to approval: As few as 15 days
- Rates: Starting at 7.99%
- LTV for purchase: Up to 85%
- LTV for refinance: Up to 75%
- LTV for cash out: Up to 65%
Fix & Flip Bridge Loan Qualifications
The qualifications for a bridge loan vary because it’s a specialty loan product. However, lenders generally look less at the borrower’s credit and financial history and more at the strength and profitability of the investment. Credit scores can be as low as 600 and investors need to show they can pay two concurrent mortgages. The lender also will require a written detailed exit strategy for the project.
Where to Find Fix & Flip Bridge Loans
Bridge loans are a specialty loan product, so they aren’t offered at all banks or credit unions. Instead, look for private lenders that offer nontraditional loan programs.
A reputable provider of fix-and-flip bridge loans is RCN Capital. It’s a national, online hard money lender that offers competitive rates to prime borrowers. You can receive a bridge loan up to $2.5 million in as few as 10 days. Apply online in minutes.
Fix & Flip Loans Frequently Asked Questions (FAQs)
In this article, we have done our best to detail your options for finding the best fix-and-flip financing for your project. However, as with any type of financing, some questions are asked more frequently than others, and we have tried to address those here.
How much cash do you need to flip a house?
How much cash is required to flip a house depends on the type of financing, your credit score, personal financial statement, the price of the property and its after repair value (ARV), your fix-and-flip experience, and how much cash you have available. You will need money for the down payment, closing costs, and fees.
What is the 70 Rule in house flipping?
The 70 Rule, also known as the 70% Rule, is a term used by fix-and-flip investors to determine what to pay for an investment property for it to be profitable. The 70 Rule states that an investor should pay no more than 70% of the property’s after repair value (ARV) minus the repairs.
Do I need good credit to flip a house?
The credit score needed to flip a house depends on how you intend to fund your fix-and-flip project. If you’re paying all cash, your credit score will likely be irrelevant. If you need to finance buying and rehabbing the property, depending on the type of financing, credit scores can range from 500 to 600 and higher.
Bottom Line
Investors know that in order to make money flipping houses, they need access to the best fix-and-flip funding. Here we’ve reviewed five types of funding for rehabilitating and flipping houses. The best option is generally a hard money loan because it can close fast, offers lenient qualifications, and funds the acquisition and rehab of the fix-and-flip project.
For fix and flippers, we recommend checking out Kiavi. It’s a hard money lender that issues rehab loans up to 75% of a property’s after repair value (ARV). Rates are competitive for prime borrowers and monthly payments are interest-only. Prequalification takes a few minutes and funding can happen in as quickly as 15 days.
