How Is a Fix and Flip Loan Structured?

Understanding the structure of a fix and flip loan helps you plan your project budget, timeline, and cash flow accurately.

Loan Components

A typical fix and flip loan has two components:

• Acquisition portion: The amount funded at closing to purchase the property — typically 80%–90% of the purchase price
• Rehab portion (hold-back): The renovation budget held in a draw account and released as work is completed — typically up to 100% of renovation costs, subject to the overall LTV/ARV limits

Draw Schedule

Rehab funds are not released all at once. The lender establishes a draw schedule tied to project milestones — foundation work, rough plumbing and electrical, insulation and drywall, finishes and fixtures, and so on. After each phase is complete, you request a draw. The lender sends an inspector to verify the work, and funds are released — typically within 2–5 business days of an approved inspection.

Interest During the Project

Interest accrues only on the outstanding balance — not on the full loan amount. In the early stages when only the acquisition portion is drawn, interest is charged only on that amount. As rehab draws are taken, interest increases accordingly.

Maturity and Payoff

At the end of the loan term (typically 12 months), the full outstanding balance is due. This is repaid from the proceeds of the property sale at closing.

A worked example (illustrative example, not a quote)

Say you buy for $300,000 and plan $60,000 of renovation, for a $360,000 project cost. The acquisition portion at 85% of the purchase price is $255,000 ($300,000 × 0.85). The rehab portion is $60,000, held back for draws. Total loan: $315,000, or 87.5% of project cost ($315,000 ÷ $360,000), so you bring about $45,000 plus costs. If the ARV is $480,000, a 70% ARV cap is $336,000, which is above $315,000, so the ARV limit does not reduce this loan.

How interest builds over the project

At closing only the $255,000 acquisition portion is outstanding. At 10% interest-only, that is about $2,125 a month ($255,000 × 0.10 ÷ 12). After a $30,000 draw, the balance is $285,000, and the monthly interest rises to about $2,375. By the final draw the balance reaches $315,000, or about $2,625 a month. Because interest follows the balance, drawing only when work is done keeps financing costs down.

The lifecycle in order

1. Application and term sheet: you submit the deal; the lender reviews value and budget.
2. Closing: acquisition funds go to the seller; the rehab amount sits in the draw account.
3. Renovation and draws: work phases are inspected and funded.
4. Listing and sale: the home is marketed and sold.
5. Payoff: escrow repays the outstanding balance, fees and any interest due from sale proceeds.

Points to confirm before you sign

• Whether the rehab holdback is part of the loan from day one or reduced if the budget changes
• How inspections are scheduled and who pays for them
• Whether any minimum interest period applies
• What the payoff process looks like at sale closing

Frequently asked questions

Are interest payments made monthly or added to the loan?

Interest-only payments are typical, but how they are collected differs, and some structures include an interest reserve. Ask which approach your term sheet uses.

What if I sell before the maturity date?

You repay the balance at the sale closing. Ask whether any minimum interest period or exit fee applies before you sign.

Does the rehab portion include contingency funds?

The rehab portion is based on your approved budget. Hold your own contingency separately, as the overrun guide recommends.

Related guides

• How loan amounts are calculated
• How rehab funds are disbursed
• Rates and points for fix and flip loans
• Typical loan terms
• What a fix and flip loan is