Key takeaways

  • A fix-and-flip loan is a short-term financing option for people who want to purchase a property with the intent of selling it in the near future for a profit.

  • House flipping involves many expenses – such as larger down payments and carrying costs – that fix-and-flip loan proceeds won’t cover.

  • A home equity agreement may be a way for you to fill funding gaps in house-flipping projects.


Real estate investing through flipping a home requires a substantial amount of capital. You need money to purchase the property you want to fix, along with capital for carrying the property and making needed repairs. The process often begins with finding a lender who will grant you a fix-and-flip loan.

This guide provides you with the details of how these loans work and other important considerations when using them to flip a property.

What Is a fix-and-flip loan?

A fix-and-flip loan is a financing option that real estate investors use when they want to purchase, renovate (fix) and resell (flip) a property to generate a profit. The loan provides borrowers with the capital necessary to purchase the home.

WATCH: How Hard Money Loans Work

A fix-and-flip loan a short-term financing solution also known as a hard-money loan or a bridge loan. Short-term, in this case, means anywhere from a few months to a little over a year.

Borrowers typically don’t want to hold fix-and-flip loans for much longer because their goal is to quickly repair the home and put it back on the market. Additionally, the interest rates on a fix-and-flip loan are much higher than those on conventional 15- or 30-year mortgages, which cuts into potential profits from the flip.

Graph shows how the dollar value of house flipping purchases financed by investors varies from year to year.

The precise terms of a fix-and-flip loan will vary from lender to lender. Qualifying terms will depend on the following factors:

  • Your relationship with the lender

  • Your experience with home flips (Your first fix and flip loan may net less-favorable terms because of the perceived increased risk to the lender.)

  • The market you’re buying into

  • The nature of the proposed renovation

  • The projected value after you repair the home

A fix-and-flip loan may also incorporate some of the terms described more fully in the following sections.

The lender will take a security interest in the purchased property

Not unlike other real estate loans, the lender will generally require a first-position security interest in the property you buy with the proceeds from a fix-and-flip loan. This means the lender will have the ability to foreclose on the property in the event you default.

In a foreclosure sale, the lender can recoup the outstanding balance of the loan along with reasonable foreclosure expenses. Depending on your finances, the lender may require additional collateral to approve the loan.

Fix-and-flip loans may have a lower loan-to-value ratio

Lenders typically view fix-and-flip loans as risky propositions, as there are so many variables that affect the borrower’s ability to fix the property and turn a profit. A host of problems can arise that delay or prevent the process altogether, ranging from contractor issues to failed building-code inspections to changes in the market.

To hedge against such risks, lenders will generally be more conservative in the loan-to-value (LTV) ratio they give a borrower. An LTV ratio is the amount of loan a lender will provide relative to the appraised value of the property. For example, the LTV of a conventional mortgage is usually 80%. The borrower comes up with the remaining 20% needed to purchase the property in the form of a down payment.

With a fix-and-flip loan, lenders may only award an LTV ratio of 65-70%, which means you may have to come up with 30-35% of the property’s value as a down payment.

Does your credit score matter when applying for a fix-and-flip loan?

Your credit score is important when applying for a fix and flip loan. However, lenders may agree to a loan with borrowers who have mediocre credit. The reason for this is that lenders rely more heavily on the value of the collateral (i.e., the purchased property) when evaluating the risk/reward of a hard-money loan.

A prior bankruptcy, home foreclosure, pending litigation or other issue could also limit your chances of qualifying for a fix-and-flip loan.

In recent years, flipped homes have comprised nearly 5-6% as a percent of all home sales.

Additional carrying costs that a fix-and-flip loan won’t cover

The proceeds from a fix-and-flip loan are meant to cover the cost of purchasing the investment property. The cost of flipping a house includes many additional expenses, though. For first-time house flippers, properly identifying and planning for these costs is often what makes a project successful or not. The real estate industry refers to these expenses as carrying costs. They are the costs you incur while holding the property until you can resell it.

These costs generally include:

  • Accrued interest on the loan

  • HOA fees

  • Property taxes

  • Insurance

  • Renovation costs

  • Building permits

  • Maintenance and utilities

  • Appraisals and inspections

  • Seller costs (e.g., hiring a real estate agent, closing costs) .

How a home equity agreement can complement a fix-and-flip loan

As noted, the costs of house flipping extend well beyond the proceeds you may receive from a fix-and-flip loan. Depending on your finances, a home equity agreement (HEA) with your primary residence may be one way for you to cover the remaining costs of your fix-and-flip project.

A home equity agreement is a relatively new financing option that allows you to sell an interest in your property to a buyer (such as Unlock) in exchange for cash proceeds. The amount you can receive in cash proceeds is a percentage of the home’s current value (usually capped around 10%). The ownership interest Unlock takes will be slightly higher (e.g., 16%) in lieu of collecting interest.

Benefits of a home equity agreement include:

  • No additional loans (which means no payments of principal and interest)

  • Flexibility in repayment

The term length of a Home Equity Agreement is typically 10 years, which gives you a couple of options for repaying the HEA provider. You can sell the home within that period and repay the provider’s equity percentage with the proceeds. Alternatively, you can buy out their interest after an appraisal of your home’s fair market value to determine the owed amount based on the equity percentage.

Apply for a home equity agreement with Unlock Technologies

Homeowners can access the value of their property with a home equity agreement to fund house flips, home renovations, and other personal or financial goals. You can check online to see your qualifying terms based on your home’s equity and its location.

Contact Unlock Technologies today to apply for a home equity agreement to access additional capital for your house-flipping endeavors.

The blog articles published by Unlock Technologies are available for informational purposes only and not considered legal or financial advice on any subject matter. The blogs should not be used as a substitute for legal or financial advice from a licensed attorney or financial professional. Links in our blog posts to third-party websites are provided as a convenience and are for informational purposes only; they do not constitute an endorsement of any products, services or opinions of the corporation, organization or individual. Unlock Technologies bears no responsibility for the accuracy, legality, or content of external sites or that of subsequent links.