If you’re planning to replace your home, buy a property, renovate it and sell it for a profit, understanding your financing options is essential. This Redfin article details the most common types of loans for flipping homes, how to qualify, and what to look out for when borrowing. Whether you’re renovating a home in Detroit, Michigan or replacing a building in San Antonio, Texas, this article will explain the main costs, loan types, and strategies for a successful relocation.
Why financing for home flipping is different
Flipping a home is different from buying a home base or long-term rental property. The business model is short-term (often within a few months to a year): purchase -> renovation -> sale. This means that the needs and risk profile of the loans are likely to be different. Here we take a closer look at what makes finance flips unique.
Because you intend to sell quickly, many lenders are more focused on the potential value of the property after repairs (post-repair value, ARV) than on long-term income. Time required is important. Delays reduce profits and increase maintenance costs (interest, taxes, insurance, utilities). Some properties may not qualify for traditional financing (especially if they are in poor condition), so you may need a more flexible or riskier financing option. Because of the higher risk, interest rates, fees, and financing terms tend to be less favorable than traditional mortgages.
Understanding this will help you choose the right financing and set realistic expectations.
What are the main expenses you are financing?
Before choosing a loan type, you need to understand what you are financing. A typical house flip project has multiple cost components.
Acquisition cost: The purchase price of real estate. Renovation/rehabilitation costs: materials, labor, permits, subcontractors, unforeseen repairs. Ownership/maintenance costs: During renovations, you may incur interest payments, property taxes, insurance, utilities, and HOA fees. Selling costs: Real estate agent commissions, closing costs, staging, and marketing. Risk or contingency buffers: unexpected delays, cost overruns, market changes.
You’ll need a financing structure that provides enough cushion for all of these expenses and a clear path to repayment (usually through the sale of your home).
Types of mortgage loans
When financing home construction, the right financing can make or break the project. Below are the most common loan options, how they work, and when each makes sense.
Loan type Standard term length Interest rate range Funding speed Key benefits Key risks/disadvantages Hard money/bridge loans Experienced flippers who need quick financing 6-24 months 8% to 15% (often interest-only) Fast (days to weeks) Fast approvals, real estate-based underwriting High fees, short schedules, risks during project delays Fix-and-flip loans Flippers who need financing for both purchase and rehabilitation 6-18 months 8%-14% Fast (days to weeks) Covers both purchase and rehabilitation. Flexible structure High rate. Strict lottery schedule. Need to sell fast Home Equity Loan / HELOC Homeowner leverages equity to flip 5-15 years (HELOC revolving) 6%-10% Moderate (weekly) Low interest rates, bigger loan potential Home at risk. Strong credit/income required Personal loans Small, low budget flips 2-7 years 8%-20% Very fast (days) Simple and unsecured Low loan amounts, high interest rates Conventional mortgages/cash-out refinances Investors with strong credit and capital 15-30 years 6%-9% Moderate (weeks) Low long-term interest rates, stable structure Strict rules, not ideal for short-term flips Creative lending (Private/Seller/Crowdfunding) Flippers without traditional capital access 7% to 18% Variable (highly volatile) Variable (sometimes fast) Flexible, negotiable terms Less regulated, higher risk, potential legal complexities
Examples of how loan conditions affect profits
Let’s look at a simple example to illustrate. Imagine you buy a fixer-upper for $120,000, spend $30,000 on renovations, and plan to sell it for $200,000. On paper, that’s a profit of $40,000.
However, with a fix-and-flip loan with a high interest rate and short repayment period, the benefits can quickly disappear due to months of delays or unexpected price declines. Even an additional $5,000 in carrying costs or a $10,000 decrease in price can turn a profitable project into a break-even deal.
That’s why it’s important to understand how loan rates, fees, and schedules affect your bottom line and build a financial buffer for delays and unforeseen circumstances.
Key metrics and risk calculations
Before applying for a loan, it’s important to understand the core metrics that lenders and investors rely on to evaluate flips.
After-Repair Value (ARV): An estimate of the value of a property after renovation. Many lenders base the loan amount on a percentage of ARV. Loan-to-Cost (LTC): Loan amount divided by total cost (purchase + rehabilitation). When costs are high, LTC becomes important because you need to have more cash on hand. Loan-to-value (LTV): The loan amount divided by the value of the property (before or after renovations). LTC measures asset value, whereas LTC focuses on the total cost of a project. Carrying costs and intermediate costs: How long will the property be left alone? Monthly costs will be added. Profit margins/buffers: Best/worst case scenarios should be modeled. If costs rise or sales prices fall, will you still make a profit, or at least break even? Exit risk: What happens if you don’t sell as quickly as planned, if interest rates rise, or if the market slows down?
Pro tip: Many experienced flippers follow the 70% rule and will not pay more than 70% of a property’s ARV minus repairs.
>>Read: Sell a house that needs repairs
How to qualify and what lenders are looking for
If you are planning a conversion and need funds, you should focus on the following:
Your experience/track record: Lenders will want to know if you’ve done flips before (or understand the risks of rehabbing). Property selection/transaction metrics: purchase price, expected renovation costs, ARV estimates, market demand. Down payment/capital injection: Many lenders will require you to provide a certain amount of capital. For example, some fix-and-flip loans offer financing up to 80% of LTC or % of ARV. Credit and income: Although asset-based lenders focus on real estate, credit and income are still important. Term/Exit Strategy: You need to indicate when and how you will sell or refinance the property. Contingency Plan: Things can go wrong (unexpected repairs, market changes), so you need a buffer or Plan B.
When you qualify for a fix-and-flip loan, lenders want confidence that you can manage the project, accurately manage the budget, and close it successfully. The stronger your experience, financial foundation, and plan, the more likely you are to secure favorable terms and complete the flip with a profit.
Common mistakes to avoid when financing a house flip
Here are some pitfalls that many people fall into when raising money.
Underestimating rehabilitation/maintenance costs: You estimate $20,000, but it ends up being $30,000, and all the delays eat into your margin. Relying on optimistic market assumptions: If you assume that resales are fast but the market slows, carrying costs will increase. Using the wrong type of loan: For example, using a traditional long-term loan when cash is fast, or using a loan that is too risky without a buffer. Without an exit strategy or contingency plan: What do you do if you can’t sell on time? Ignoring financing terms: Prepayment penalties, interest-only periods, and schedule restrictions (especially with rehabilitation financing) can delay funding and slow progress. Overleverage: Reaching out wide to maximize profits, but leaving little room for error.
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