Short-term and renovation

Fix-and-flip is the loan for an investor buying a property to renovate and resell, not for a home you will live in

A fix-and-flip loan is a short-term, business-purpose loan for an investor buying a property to renovate and resell, with the rehab budget built into the loan and released as the work is inspected. It is sized on what the property will be worth after the work, not only on what it costs today, and it is repaid when the property sells. It suits an investor in San Luis Obispo County or elsewhere on the Central Coast who brings a plan, a budget and a date to be sold by. It can cost more than a mortgage, and it is not for a home you will live in.

Ask us about fix-and-flip loans Call (805) 704-9093

The program in one box

What it is: A short-term, business-purpose loan for an investor buying a property to renovate and resell. The purchase money and the rehab budget are financed together, in one loan.
Who it suits: An investor with a property in hand or under contract, a written scope of work, a budget with room in it, and a date to be sold by that can be defended.
How it is sized: Against the purchase price, the rehab budget and the after-repair value, which the appraiser estimates from the plans. The lender sets how much of each it advances, and what it does not advance is yours to fund.
How the money moves: The purchase money funds at closing. The rehab money sits in a holdback and comes out in draws as each stage of the work is inspected.
How it is qualified: On the property and the plan more than on your income. It is a business-purpose loan on a property you will not live in, which puts it outside the ability-to-repay rule that governs a home loan. Credit is still pulled, and your record on prior projects counts.
How it is repaid: Payments as the lender sets them while the work is under way, then the whole balance at once when the property sells. An investor who keeps the finished property as a rental can refinance into a DSCR loan instead, if the rent and the finished value support one. If the project runs past the term, an extension is the lender's to grant, on its terms.
What it costs: Set by each lender, and it can include points at closing, a higher rate than a mortgage, and a prepayment penalty written as a minimum interest period, or a fee at payoff. Each is named in the term sheet and none is priced on this site.
Where it is not the answer: A home you will live in, which is a consumer loan and needs FHA's 203(k) or a conventional renovation loan. A property you mean to hold is a DSCR loan. A project whose numbers only work if nothing goes wrong should not be done with borrowed money.

What this program is good at

The rehab budget is part of the loan, so the project is financed as one thing rather than a purchase loan and a scramble for the rest.
It is sized on the after-repair value, which is the number a renovation creates. A purchase loan only ever sees what the property is worth today.
Its cost and its timeline are set by the lender, and it can cost more than a mortgage, so price that in from the start.
It is qualified on the property and the plan, so an investor whose tax returns say little about what they actually make is not stuck explaining them. Credit is still pulled.
The draw schedule is a discipline as well as a constraint: an inspector signs off each stage before the next money moves.
If the plan changes from sell to keep, the exit changes with it. The finished property can be refinanced into a DSCR loan if its rent supports one.

Who qualifies

What a lender weighs before this program is on the table. A lender can add rules of its own, and those rules can differ from one lender to the next.

The project, not your pay stubs

A fix-and-flip loan is a business-purpose loan on a property you will not live in, and business-purpose credit sits outside the federal rule that makes a lender verify a borrower's ability to repay a home loan. That is why it can be qualified on the property, the budget and the plan rather than on tax returns. It is not a loophole: your credit is pulled, the lender asks what you have finished before and what you have in the bank, and the moment you intend to live in the property the loan is a consumer loan with every rule a home loan carries.

The numbers have to work

The appraiser estimates the after-repair value from the plans and from sales of comparable homes that have already been renovated, and the lender sets how much of that value and of the cost it will advance. Against it go the purchase price, the rehab budget, the interest you carry during the project, the points and fees, and the cost of selling. What is left is the margin, and it has to survive a surprise behind a wall and a slower sale than you planned.

Your own money in the deal

The lender does not finance everything. You fund the gap between the purchase price and what it advances, the closing costs, the interest payments while the work is under way, and the work itself between draws, since a draw may reimburse a stage only after it has been inspected. A lender may also want to see cash left after closing, not only cash at closing.

Experience

How many projects you have finished, and how they went, can change the terms a lender offers and how much of the project it will advance. We arrange fix-and-flip loans for a first project too, and on one, expect more asked of you, a closer look at your contractor and your budget, and a harder question about what happens if the sale is slow. A record of finished projects is what makes the next loan simpler, which is a reason to keep the first one modest.

Where it is not the answer

A home you will live in. That is a consumer loan, the lender must verify your ability to repay it, and the right route is FHA's 203(k) or a conventional renovation loan such as Fannie Mae's HomeStyle Renovation or Freddie Mac's CHOICERenovation, each of which finances the purchase and the work together on a home you occupy. A property you mean to keep and rent is a DSCR loan, from the start or through a refinance once the work is done. And a project that only works if nothing goes wrong is not a loan problem; it is a project to walk away from.

How it works with us

What happens once you get in touch

The steps in order, so you can see what is coming. Nothing here is underwritten until a lender underwrites it.

Bring the deal, not a finished application
The address, the price, the scope of work with a budget, the date you expect to sell by, what you have finished before and what you can put in. No credit pull is needed to have the conversation.
The lender values it and sets the draw schedule
The appraiser values the property as it stands and as it will be after the work, from the plans. The lender sets the holdback, the draw schedule and the inspections, and puts the terms in writing.
Close, build, draw, sell
Interest-only payments run from closing. Each draw is a request, an inspection and a release. Line up the exit, a sale or a refinance into a DSCR loan, before the last draw rather than after it.

What people ask about this program

If yours is not here, call us. The useful answer depends on your file.

What is a fix-and-flip loan?

A fix-and-flip loan is a short-term, business-purpose loan for an investor who is buying a property to renovate and resell. The lender finances the purchase and holds the rehab budget back, releasing it in draws as the work is inspected, and sizes the loan on the property's expected value after the repairs as well as on what it costs. Payments may be interest-only while the work is under way, and the loan is repaid in full when the property sells, or by a refinance if the investor decides to keep it as a rental.

Do I have to show income to get a fix-and-flip loan?

Less than for a home loan, because a fix-and-flip loan is a business-purpose loan on a property you will not live in, and federal law treats that differently from a loan on your own home. The lender qualifies the loan on the property, the budget and your plan to sell, and it still pulls your credit, asks about the projects you have finished and wants to see the cash you bring. If you intend to live in the property, the loan is a consumer loan, the lender must verify your ability to repay it, and a renovation loan built for an owner is the right product instead.

How is the after-repair value decided?

An appraiser estimates the after-repair value from the scope of work and the plans, using sales of comparable homes that have already been renovated, so the number is only as good as the plans and the budget behind it. How much of that value and of the project's cost the lender advances is each lender's own rule rather than anything we can publish. A thin or optimistic scope of work produces a value nobody will lend on, which is why the budget deserves more care than the loan application does.

Can I use a fix-and-flip loan on a house I am going to live in?

No. A fix-and-flip loan is a business-purpose loan, and a loan on a home you will live in is a consumer loan with its own federal rules, including one that makes the lender verify your ability to repay it. The products built for that are FHA's 203(k) loan and the conventional renovation loans, Fannie Mae's HomeStyle Renovation and Freddie Mac's CHOICERenovation, each of which finances the purchase and the repairs together on a home you occupy. Calling an owner-occupied project an investment to get around that rule is a false statement on a loan application.

Does it matter how soon I resell the finished house?

It does if your likely buyer will use an FHA loan. FHA's property flipping rule makes a home resold too soon after the investor bought it ineligible for an FHA-insured mortgage, and a resale a little later at a price well over what the investor paid can require a second appraisal. The clock runs from the date you took title to the day all parties have signed the buyer's sales contract, not the day it closes, so the resale date belongs in the timeline from the start. A buyer paying cash or using a conventional loan is not bound by that rule, though a conventional lender may ask its own questions about a quick resale at a much higher price.

Short-term and renovation

Hard money and private money loans

Short-term, asset-based money from private lenders, for a property or a timeline a bank will not take. It costs more.

The lender underwrites a property and a plan rather than a full income file, and it sets its own timeline and its own price for that.
A property a bank will not lend on in its current condition, a house with no kitchen, a vacant building, raw land, may still find a private lender, because the lender is looking at what it is worth and what it will be worth once the plan is done.
It is qualified on the property and the exit rather than on pay stubs. That is because a business-purpose loan on property you do not live in sits outside the federal consumer mortgage rules, not because any lender is doing you a favor, and it is why the purpose on the file has to be true.

More about Hard money

Investor and self-employed

DSCR loan

Qualified on the rental's rent rather than your tax returns. A business-purpose loan for an investor, priced like one.

The rent qualifies the loan, so a rental that carries itself can be bought or refinanced without reopening your tax returns, your business's returns or the entities behind them.
A purchase or a refinance, including cash out of a rental you already own, which is how one property's equity becomes the next property's purchase.
The loan can be made to an LLC that holds the property.

More about DSCR

Construction and commercial

Construction loan

Pays for building a home on your lot, in draws, then becomes or is replaced by a mortgage.

It is the way to finance a home that does not exist yet, which on a county lot with a view and no house is the whole question.
A construction-to-permanent loan qualifies you for the permanent mortgage at the start, so you are not starting a new application when the build ends, though a long build can mean updated paperwork and requalifying at conversion.
A lot you already own can go into the loan: Fannie Mae's Selling Guide and FHA's handbook both let a construction-to-permanent loan pay off what is owed on land the borrower owns and fund the build.

More about Construction

Where this program fits:Buying a home Refinancing The county's loan limits The Central Coast Services

Published by

California Mortgage Solutions Inc. · Company NMLS #325189

This page is general information about a loan program, not an offer of credit or a commitment to lend. What a lender will do with your file depends on the file.

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