Fix and Flip Loans · 4 min read
How to Qualify for a Fix and Flip Loan: What Lenders Look For
What lenders review on a fix and flip loan: the deal, ARV, experience, credit, liquidity, scope of work and exit strategy.
This guide is part of our Fix and Flip & Hard Money Loans hub.
Fix and flip loans are short-term, asset-based loans that fund the purchase and renovation of an investment property you plan to resell. Because lenders focus on the deal more than your W-2 income, qualifying looks very different from a conventional mortgage. Here is what lenders review and how to put together a file that gets fast, competitive terms.
What lenders look at first: the deal
A hard money lender underwrites the property and your exit. The three numbers that matter most are the purchase price, the rehab budget and the after-repair value (ARV). Our guide to calculating ARV and the 70% rule walks through the math. Lenders size the loan against these numbers using two limits:
- Loan-to-cost (LTC): the loan amount compared to purchase price plus rehab. Many programs fund a high share of the purchase and up to the full rehab budget.
- Loan-to-ARV: the loan compared to the projected value after renovation. Lenders commonly cap this around 70% to 75% of ARV.
If the deal works on both limits, you are most of the way to an approval. If it does not, no amount of personal income will fix it.
Your experience
Lenders price experience. Investors with several completed flips in the last few years usually get higher leverage, lower rates and fewer conditions. First-time flippers can still qualify, but expect a larger down payment or a requirement to bring an experienced partner or contractor onto the project.
Credit score
Many fix and flip programs have no hard minimum credit score, but credit still affects pricing and leverage. Lenders look for recent foreclosures, bankruptcies, tax liens and open judgments more closely than the score itself. If something is on your report, explain it up front.
Liquidity and cash to close
Plan to show bank statements covering your down payment, closing costs and a cushion for interest payments and overruns. A common rule of thumb is to have reserves equal to several months of payments after closing. Lenders want to see that a delay will not sink the project.
A realistic scope of work
Your rehab budget should be a line-item scope, not a single number. Include materials, labor, permits and a contingency of 10% to 15%. See how rehab draws work for how lenders release those funds. Most lenders hold the rehab funds and release them in draws after an inspector confirms the work, so a clear scope also speeds up your draws.
A clear exit strategy
Lenders want to know how you will repay the loan. The two common exits are a sale after renovation or a refinance into a long-term DSCR rental loan. Show comparable sales that support your ARV, or rental comps and an estimated debt service coverage ratio if you plan to hold.
Documents to have ready
- Purchase contract and proof of earnest money
- Line-item scope of work and contractor bids
- Comparable sales supporting the ARV
- Recent bank statements showing liquidity
- A track record of past projects (addresses, purchase and sale prices)
- Entity documents if you buy through an LLC
How to get better terms
- Buy right. A lower purchase price relative to ARV is the single biggest lever on your approval and leverage.
- Submit a complete file. Missing documents are the most common cause of delays.
- Compare more than one lender. Rates, points, draw rules and extension fees vary widely.
- Cover gaps with the right product. Some investors use an unsecured business loan for part of the down payment or holding costs.
Related guides
- Hard Money vs. Bank Loans for Real Estate Investors
- How Rehab Draws Work on a Fix and Flip Loan
- How to Calculate ARV and Use the 70% Rule
Explore the full hub: Fix and Flip & Hard Money Loans. Other financing: DSCR & Long-Term Rental Loans · Commercial Real Estate Loans · Unsecured Business Loans · Trust Deed Investing.
Have a deal in hand? Send your scenario and a broker will review it within one business day. No upfront fees.
Terms, leverage and timelines vary by lender, property and borrower qualifications. This article is general information, not financial, legal or investment advice, and not a commitment to lend.