Fix and Flip Loans Explained: LTC, ARV and What Lenders Look For

A fix and flip loan is short-term financing to buy a property, renovate it and sell (or refinance) it. These loans are built for speed and for properties that won't qualify for a conventional mortgage in their current condition.

The three numbers that size your loan

• Purchase price. What you're paying for the property.
• Rehab budget. Your line-item scope of work.
• ARV (after-repair value). What the property should be worth once the work is done, usually set by an appraisal or valuation.

Lenders use those numbers in two ratios:

LTC (loan-to-cost) = loan ÷ (purchase + rehab)

LTARV (loan-to-ARV) = loan ÷ after-repair value

Your loan is usually capped by whichever limit is hit first. A lender might fund a high share of the purchase and all of the rehab, as long as the total stays under its ARV limit.

A worked example

Purchase $200,000, rehab $60,000, ARV $360,000. Total cost is $260,000. If a lender funds 90% of purchase and 100% of rehab:

$180,000 + $60,000 = $240,000 loan

$240,000 ÷ $360,000 = 67% of ARV

If that lender's ARV cap is 75%, the deal fits. You'd bring the remaining $20,000 of purchase price plus closing costs. These figures are only an illustration. Actual leverage depends on the lender, your experience and the property.

How rehab draws work

Rehab money usually isn't handed over at closing. It's held back and released in draws: you finish a phase of work, request a draw, an inspector confirms the work, and the lender reimburses that phase. Because you only pay interest on funds that have been drawn, your actual interest cost is often lower than a full-balance estimate.

Tip: keep enough cash to fund the first phase yourself, since draws reimburse completed work.

What lenders want to see

• Experience. Completed flips in the last few years often earn higher leverage and better pricing. First-time flippers can still get funded, usually with more cash in the deal.
• A realistic scope of work. Line items, costs and a timeline, not a single number.
• Credit. Many programs set a minimum score, and some tracks go without one.
• Liquidity. Cash for the down payment, closing costs, the first draw and a cushion for surprises.
• An exit. Sale or refinance, and the numbers to support it.

Common mistakes

• Using a hopeful ARV instead of solid, recent comps
• No contingency in the rehab budget
• Underestimating holding costs: interest, taxes, insurance and utilities for every month of the project
• Picking a loan term shorter than a realistic timeline

How LOANKWEST helps

We match your deal to the right fix and flip track for your experience and credit, then present it to lenders in our network. Planning to hold instead of sell? Ask about refinancing into a DSCR loan once the property is rented.