A fix-and-flip loan is short-term financing built specifically for buying and renovating a property to resell, rather than to hold long-term. Because these loans are often underwritten around the after-repair value (ARV) instead of the property's current condition, they open up deals that a conventional mortgage wouldn't touch — but they come with different costs and risks. Here's a general overview of the main options; specific rates, points, and terms change constantly and vary by lender, so confirm current numbers directly with lenders before assuming anything here applies to your deal.
Hard Money Loans
Hard money lenders are typically private, asset-based lenders who focus more on the deal — the purchase price, rehab scope, and ARV — than on your personal credit profile. Advantages: fast closing, flexibility on property condition, and underwriting built for exactly this use case. Trade-offs: rates and origination fees ("points") are typically higher than a conventional loan, and the loan is usually short-term, meaning you need a clear exit plan (sale or refinance) before it matures.
Private Money Loans
These come from individuals — sometimes other investors, sometimes personal connections — rather than an institutional lender. Terms are negotiated directly, which can mean more flexibility, but also less standardization; put every term in writing regardless of how well you know the lender. Private money can be faster than hard money in some cases, since there's no institutional underwriting process, but reliability depends entirely on the individual lender's own capital and terms.
Conventional Rehab Loans
Some conventional loan programs are designed specifically to finance a purchase and renovation in a single loan (rather than separately financing the purchase and then the rehab). These generally require the borrower to meet standard mortgage credit and income qualification, plus a detailed, contractor-prepared scope of work, and can take considerably longer to close than hard money. They tend to fit better for owner-occupants or investors doing a slower, more traditional renovation rather than a fast turn-and-sell flip.
Home Equity and Cash-Out Options
If you already own property with equity, a home equity line of credit (HELOC) or cash-out refinance on that existing property can fund a flip's purchase or rehab without a new asset-based loan. This avoids flip-loan rates and points, but it puts your existing property at risk if the flip doesn't perform as expected — treat it with the same seriousness as any other secured debt.
How to Evaluate Which Option Fits
- Speed needed: Hard money and private money typically close faster than conventional rehab loans — important in a competitive offer situation.
- Total cost of capital: Compare rate, points, and loan term together, not rate alone — a lower rate with high points on a short-term loan can cost more than it looks at first glance.
- Your qualification profile: Conventional programs weigh personal credit and income more heavily; hard money weighs the deal and your track record more heavily.
- Exit strategy: Make sure your financing term is realistic against your actual renovation and sale timeline, with a buffer for delays — flips routinely run longer than planned.
Frequently Asked Questions
Q: Are fix-and-flip loan rates always higher than a regular mortgage?
A: Generally yes for hard money and private money, because they're short-term and asset-based rather than long-term and credit-based — but exact rates vary by lender and market, so get current quotes rather than assuming a fixed premium.
Q: What happens if my flip takes longer than the loan term?
A: This depends entirely on your specific loan agreement — some lenders offer extensions (often at a cost), others don't. Ask about this explicitly before signing, not after you're already over time.
Q: Do I need experience to qualify for a hard money loan?
A: Many hard money lenders do consider your track record as part of underwriting, though requirements vary widely by lender — some work with newer investors, often with more conservative terms.
Q: Is a HELOC a good way to fund my first flip?
A: It can be cost-effective if you have available equity, but it puts your existing property at risk if the flip underperforms — weigh that risk carefully against the savings versus a dedicated flip loan.