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Loan Officer's Guide to Fix-and-Flip Loans
By Jason Taken · Founder, Jaken Finance Group
A loan officer's guide to fix-and-flip loans: how rehab draws and ARV leverage work, and how to get paid on the flip deals you can't fund.
The house doesn’t have a working kitchen. Half the drywall is on the floor. There’s a lockbox on the door and a wholesaler’s contract with 14 days left on it. Your investor client wants $250,000 to buy it and fix it, swears it’ll be worth $360,000 by fall — and you already know your underwriter will laugh you out of the room, because you can’t get a conventional loan on a property that fails habitability, on a timeline that short, in an LLC.
So you pass. Someone else funds the flip, and when the dust settles that investor has a lender for life. Fix-and-flip loans are how you keep that borrower instead of donating them. This guide breaks down how flip financing is underwritten, which of your declines are actually flip deals, and how — through a referral or broker relationship — you get paid on projects you were never able to originate. It builds on our hard money guide for loan officers and links to current terms on our fix-and-flip requirements page.
What a fix-and-flip loan is — in your terms
A fix-and-flip loan is a specific, purpose-built flavor of asset-based hard money: short-term financing that funds both the purchase and the renovation of a property the investor intends to resell for profit. Everything about it is engineered around one question your agency products can’t answer — how do you lend against a house that isn’t done yet?
The mechanics that make it work:
- It funds purchase + rehab. One loan covers the acquisition and the renovation budget, sized against what the property will be worth after the work.
- Rehab releases in draws. The renovation money isn’t handed over at closing. It’s held and released in stages as the work gets done and inspected.
- It’s interest-only and short. Terms run 6–18 months, interest-only, with a balloon at resale.
- It’s underwritten on the deal, not the borrower. After-repair value, loan-to-cost, and the scope of work drive approval — not DTI or tax-return income.
- Entity vesting is standard. Flippers close in LLCs; that’s expected.
If you internalize one thing: a fix-and-flip loan is a bet on the finished property, structured so the lender only releases rehab cash as the finished property actually takes shape.
The numbers that drive a flip approval
Four inputs decide whether a flip is fundable. Knowing them lets you pre-qualify a deal in one conversation before you ever send it over.
1. After-Repair Value (ARV). The comp-supported value once the rehab is complete. The loan is capped at a percentage of ARV — commonly 70–75% — so there’s an equity cushion at resale.
2. Loan-to-Cost (LTC). The share of total project basis (purchase + rehab) the lender funds. Strong, experienced sponsors reach 85–90%+; newer sponsors get less.
3. Scope of work. A credible, line-item rehab budget. This is the document that makes or breaks the file — a vague scope means an untrustworthy ARV, which compresses leverage or kills the deal.
4. Experience tier. A flipper’s track record directly sets leverage and pricing. Ten completed flips unlocks the top of the range; the first flip gets approved with more cash in and a conservative scope.
Remember the governing rule: the lower of the ARV cap and the LTC cap wins. Point a borrower at the fix-and-flip calculator and you can show them their real leverage and carry in real time.
The declines that are actually flip files
Sort your rejected files by why you said no. These aren’t dead — they’re flip deals wearing an agency decline:
| You declined because… | Fix-and-flip answer |
|---|---|
| Property fails habitability / no working kitchen or systems | Condition is the whole thesis — funded on ARV |
| Borrower needs to close before a wholesaler contract expires | 7–10 business day close is normal |
| Buyer is vested in an LLC | Standard for flippers |
| Self-employed borrower fails DTI | No DTI — asset-based |
| It’s a renovation, not a move-in-ready purchase | Rehab draws are the core feature |
| Borrower plans to resell in months, not hold | Resale is the built-in exit |
If you declined because the property wasn’t finished or the timeline was too tight — not because the deal itself is bad — you were holding a referral. Send us the scenario and we’ll tell you same-day whether it pencils.
Rates, terms, and timelines to set expectations
You won’t quote these, but framing them makes you the pro who saw it coming:
- Rate: roughly 8.99%–13.5% interest-only, set by experience, leverage, and property risk.
- Points: typically 1.5–3 origination points.
- Term: 6–18 months, interest-only, balloon at resale.
- Close: 7–10 business days on a complete file.
- Draws: rehab funds release per milestone after inspection — usually within a few business days.
The framing that keeps a flipper grounded: on a flip, the enemy isn’t the rate — it’s time. Every extra month the project sits adds interest-only carry and eats the margin. A disciplined scope and a contractor who can hit milestones matter more to the borrower’s profit than shaving half a point off the rate.
A worked example you can walk a borrower through
Your experienced client finds that gutted house: $250,000 purchase, $60,000 rehab, $360,000 ARV.
- Total project cost: $310,000
- ARV cap at 75%: $270,000
- LTC cap at 90%: $279,000
- Loan (lower of the two): $270,000
- Borrower cash in: ~$40,000 + closing costs + carry reserve
- Carry at 11% IO on $270,000: ~$2,475/month
- Five-month hold carry: ~$12,400
- Exit: resell at $360,000 — or refinance into a DSCR loan and keep it
The deal lives or dies on the spread between the $360,000 resale and the ~$322,000 all-in cost (purchase + rehab + carry + costs), not on the note rate. When you can narrate that, you’ve turned a decline into a fundable plan.
How the flip file moves, step by step
Knowing the sequence lets you tell the borrower exactly what happens after the hand-off:
| Stage | What happens |
|---|---|
| 1 | Borrower submits address, contract, comps, line-item scope, experience, and proof of liquidity |
| 2 | Lender sets ARV and LTC caps, confirms experience tier, issues a term sheet |
| 3 | Light valuation ordered; title and LLC docs collected |
| 4 | Loan closes in 7–10 business days; purchase funds |
| 5 | Borrower completes a rehab milestone, requests inspection |
| 6 | Draw releases after approval; repeat through the scope |
| 7 | Exit: resale or DSCR refinance pays off the note |
The stalls are almost always a thin scope or weak comps at intake, or a borrower who can’t float costs between draws. Coach both, and you look like the person who knew how to package a flip.
What your borrower will ask you — and how to answer
“Can I really get 100% financing?” Usually it means up to 100% of rehab and a high share of purchase — capped by ARV. The strongest, most experienced sponsors on well-supported deals get closest. Plan on bringing closing costs and reserves regardless.
“I’ve never flipped before — am I out?” No, but you’ll bring more cash and a conservative scope. A good deal with a new sponsor beats a shaky deal with a veteran.
“When do I get the rehab money?” In draws, after inspection at each milestone — not at closing. Budget to float your contractors between tranches.
“What if it doesn’t sell?” Refinance into a DSCR loan and rent it, or take a short extension. Two exits make a stronger file than one.
“Why not just use my HELOC or a bank?” Speed and property condition. A bank won’t fund a gutted house on a 10-day clock; this product is built for exactly that.
A second example: the first-time flipper
Your client has never flipped, but found a cosmetic rehab: $180,000 purchase, $30,000 in updates (paint, floors, kitchen refresh), $260,000 ARV.
- ARV cap at 70% (conservative for a new sponsor): $182,000
- LTC at 80% of $210,000 cost: $168,000
- Loan (lower): $168,000
- Borrower cash in: ~$42,000 + costs + reserve
- Why it still works: a clean cosmetic scope, a conservative ARV, and real skin in the game de-risk a first-timer
The lesson for you: don’t pre-judge a new investor out of the deal. A tight, low-risk cosmetic flip is exactly how first-timers get their first approval — and their first loyalty to whoever financed it.
Fix-and-flip vs. hard money vs. DSCR: a cheat sheet
| Fix-and-flip | Hard money (broad) | DSCR | |
|---|---|---|---|
| Job | Buy + rehab + resell | Any fast, asset-based need (incl. bridge) | Hold a stabilized rental |
| Funds rehab in draws | Yes | Sometimes | No |
| Underwritten on | ARV / LTC / scope | The deal | The property’s cash flow |
| Term | 6–18 mo, IO | 6–18 mo, IO | 30 yr |
| Exit | Resale or DSCR refi | Sale, refi, or payoff | Long-term hold |
The pattern: the flip loan acquires and renovates; the DSCR loan holds if the borrower keeps it. That’s one investor relationship with two loans — and both can run through you.
Your move: refer it or broker it
You don’t underwrite flips, manage draws, or carry the risk. You do one of two things:
Refer it. Send the borrower and the deal; Jaken Finance Group originates, funds, and manages draws; you’re paid a referral fee. Lowest friction, and the right default for most residential LOs.
Broker it. Stay on the file and broker it through Jaken Finance Group for broker compensation.
The compliance point specific to you: your referral-fee limits on consumer mortgages come from RESPA, which governs consumer-purpose residential transactions. A fix-and-flip loan on a non-owner-occupied investment property is a business-purpose loan — a different category, which is why the referral-fee analysis differs from your agency world. It isn’t automatic and state licensing rules vary, so confirm your specifics with compliance or counsel — but it’s why this income stream is open to you.
The clean start is our referral-partner program: flag the deal, we handle origination, draws, and disclosures, and you keep the client for the eventual DSCR refinance or agency takeout. You can also send flip scenarios directly through our flip intake. Prefer to stay hands-on? Become a Jaken Finance Group broker.
This guide is part of our complete financing playbook for loan officers — the deals outside the agency box and how to get paid on them.
The bottom line
Fix-and-flip isn’t a product you learn to underwrite — it’s one you learn to recognize. The gutted house, the wholesaler’s clock, the LLC, the “it’ll be worth more when I’m done” — every one of those is a signal you’re holding a flip referral, not a dead file. Learn the four numbers, respect the draw schedule, set the borrower’s expectations on time and reserves, and route it to a partner who funds it.
The investor with the gutted three-bed is going to flip it this year no matter what you do. The only open question is whether you’re the lender they thank afterward. Send us the scenario and find out today.