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A Beginner's Guide to Fix and Flip Loans: Funding Your Real Estate Ventures

Fix and Flip Loans: A Guide for Beginners
Lauren Ward
Lauren WardUpdated September 5, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Fix and flip loans are financing options for investors who want to purchase a house, fix and renovate it, and then sell it shortly after purchasing it. The loan amount is more than the full purchase price so the borrower has enough funds to renovate the home and cover any costs associated with selling. Keep reading to learn what fix and flip loans are, how to qualify for one, how they differ from home loans, other financing options, and more.

What Are Fix and Flip Loans?

Fix and flip loans are used by house flippers to buy, repair, and sell homes within a short amount of time. Because both the borrower and the lender know the home is a short-term business venture, the repayment period for the loan is often only between six months and three years.

Are Fix and Flip Loans for Beginners?

Not necessarily. Because of the fast turnaround, investors need to have a solid understanding of the housing market and know how much money they should put into a home before the home becomes too expensive for their ideal buyer. The investor should also have all of their contractors lined up beforehand to ensure they meet all of their deadlines. This means the investor should probably either be a contractor themself or have an existing relationship with one. All in all, because of the short loan terms, fix and flip funding usually requires investors to have already streamlined their house flipping business. New investors can also find success with fix and flip loans, though. They should just be aware that the shorter repayment periods could make their house flipping project unnecessarily difficult the first few times.  Recommended: What Is the Cost to Remodel a House?

Fix and Flip Loans vs Home Loans

Fix and Flip LoansHome Loans
Repayment PeriodSix to 36 months10 to 40 years
Interest RatesVaries with lender, but may start around 9.49% (as of August 2023)Varies with lender, but may start at 7.60% (as of August 2023)
Monthly PaymentInterest-only until loan maturityPrincipal and interest
Closing and Origination FeesYes, but amounts will vary with each lenderYes, but amounts will vary with each lender
Time to CloseVaries with each lender, but some lenders may offer 7 to 14 day closingVaries with each lender; 30 to 45 days is the common amount of time 
Purpose of LoanHouse flippingPrimary residence or long-term investment
Fix and flip loans are not intended for homebuyers purchasing their primary residence. The interest rates are high and the repayment periods are short (six to 36 months). Traditional home loans, on the other hand, have longer repayment periods (15, 20, or 30 years), and low interest rates compared to fix and flip loans. Both loans, however, use the property itself as collateral to secure the loan. If you’re an investor and you feel confident in your ability to undergo repairs and sell a property in a short amount of time, then a fix and flip loan may be a good fit. If you’re new to flipping real estate and don’t want the added burden to complete your project within a specified time frame, then a traditional mortgage or other loan product may be a better fit.  As for the monthly payments, fix and flip loans often only require interest payments until the principal is due. Home loans, on the other hand, require both principal and interest payments from the start. While the interest rates are higher with a fix and flip loan, if you are able to flip a house within the allotted time frame, the interest-only payments won’t add up as they would with a long-term loan. 

Fix and Flip Funding Options

Investors looking to get into the house flipping business have other options besides fix and flip loans. There are many types of small business loans on the market, some of which may be a better fit depending on your credit profile and expertise. Other funding options include:

Business Line of Credit

A business line of credit is similar to a credit card in that borrowers are given a credit limit. They can use the funds up to their credit limit, pay it back (with interest), and use it again. Borrowers who remain up-to-date with their payments and who have a strong credit profile may be able to keep the account open for as long as needed. Other borrowers may only be given the option of a six to 12-month repayment plan. 

Home Equity Line of Credit

A home equity line of credit (HELOC) allows borrowers to use their home’s equity as collateral to secure a line of credit. Similar to a business line of credit, HELOCs have what is known as a draw period, where the borrower can access the line of credit up to their credit limit, pay it back (with interest), and use it again. Because the borrower’s home is used as collateral, interest rates are typically lower than with other forms of borrowing.

Peer-to-Peer (P2P) Lending

Peer-to-peer lending is a type of crowdfunding where the borrower borrows money from individuals instead of a traditional lender. Because the eligibility requirements are easier to meet, the loan terms are often less favorable than they would be through a traditional financial institution. Recommended: Guide to Crowdfunding for Commercial Real Estate

Personal Loan

While you can use a personal loan to buy a house, most lenders cap out their personal loan products at $100,000. Because of this, investors may want to use a personal loan for the renovation portion of the project as opposed to the home purchase. Recommended: Personal Loans for Home Improvement

Hard Money Loan

A hard money loan can be used to fix and flip a house, and lenders who offer these types of loans often care more about the value of the property being purchased than they do the borrower’s credit profile. It’s a short-term, high-interest loan, but it’s a valid option if you have a subprime credit profile. 

Small Business Loan

You can also use a small business loan to purchase real estate. Some term loans are specifically targeted towards fix and flip investors. You may want to focus specifically on long-term business loans because these come with higher loan amounts and lower interest rates when compared to short-term loans. Recommended: Commercial Bridge Loans Explained

Why Choose a Fix and Flip Loan?

Fix and flip loans are often able to process quickly and, depending on the lender, you may not even have to put down a down payment. If time is of the essence and you need to make your offer more appealing to the seller, a fast closing date may put you ahead of your peers. 

House Flipping: Risks and Rewards

Before taking out a fix and flip mortgage, make sure you understand real estate trends in your area and can answer the following questions:
  • How long are similar houses staying on the market in your area? 
  • What is the typical sales price of a remodeled home with a similar square footage in your area? 
  • When will a contractor be able to begin and complete the work? 
With such a short-loan term, you will need to either sell the house or refinance the loan if you’re unable to repay the loan once full payment is due. If you’re unable to do either, the house will be seized in lieu of payment.  Another thing to consider is that if you’re in the market for a new primary residence, a fix and flip loan, like any loan product, will appear on your credit report. Because of this, it may prevent your ability to get a mortgage with a low rate. 

The Takeaway

Fix and flip loans cover all costs associated with buying, renovating, and selling. They are specifically tailored to house flippers who understand the real estate market and know what needs to be done to turn a profit on real estate. However, fix and flip financing comes with some drawbacks — mainly higher interest rates and shorter loan terms. If you’re new to house flipping, a fix and flip loan may make your job harder than it needs to be the first time around. Other options for financing your project include a business line of credit, a HELOC, peer-to-peer lending, a personal loan, a hard money loan, and a small business loan.If you’re looking for a small business loan, consider Lantern by SoFi. With Lantern, you can receive a small business loan offer from one of our leading lenders by filling out one simple form, all with no obligation to you.

Frequently Asked Questions

What is the minimum credit score required for a fix and flip loan?
How much money can I borrow for a fix and flip project?
What is the typical loan term for a fix and flip loan?
Photo credit: iStock/andresr

About the Author

Lauren Ward

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
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