Fix and flip loans and hard money: how they work

The deals that make money are the ones you can actually close. That sounds obvious until you're competing against a cash buyer with a seven-day timeline.

This is the real reason investors use hard money instead of a bank. It isn't that they can't qualify for a mortgage. It's that the mortgage takes 45 days and the deal won't wait.

Fix and flip financing trades a higher rate for speed and flexibility. Used right, that trade is worth it. Here's how the loans work and how to keep the cost from eating your profit.

What is a fix and flip loan?

A fix and flip loan is short-term financing built for buying, renovating, and reselling a property. It's asset-based, meaning the real estate itself is the collateral.

Hard money is the broader category these loans fall under — fast, flexible, privately funded capital used when speed beats getting the lowest rate. Most fix and flip loans are a type of hard money.

The borrower is usually a real estate investor or a spec builder. The common thread is a clear plan to add value and exit within a year or two, which is what makes a short, higher-cost loan make sense.

How fix and flip loans work

The lender funds a large share of the purchase price plus a renovation budget. The purchase money comes at closing. The rehab money comes later, in draws.

Draws matter. You don't get the rehab budget up front. You complete a stage of work, the lender verifies it, and the next tranche releases. It protects the lender and keeps you disciplined on the timeline.

During the loan you typically pay interest only, which keeps your carrying costs low while you renovate. Then you sell or refinance and repay the principal in full.

Not sure this is the right structure for your project? Run through the options first.

Understanding ARV — the number that decides your loan

After-repair value is the projected worth of the property once renovations are complete. It is the single most important number in the deal.

Most lenders cap the total loan at roughly 65 to 75% of ARV. That ceiling determines how much they'll lend across purchase and rehab combined.

Here's a simple version of the math.

Get the ARV wrong and the whole deal wobbles. Conservative, comparable-backed ARVs are what separate investors who keep getting funded from the ones who don't.

Hard money vs conventional financing

A conventional loan is cheaper and slower. Hard money is faster and more flexible. They're tools for different jobs.

Use hard money to win and renovate the property. If you're keeping it as a rental, refinance into cheaper long-term financing once the work is done and the property is stabilized.

The mistake is holding hard money too long. It's short-term money by design, so a clear exit is part of the plan from day one, not an afterthought.

Financing your first flip

First-timers can absolutely get funded. The deal carries more weight than your résumé.

Bring a strong property with a realistic ARV and enough reserves to cover carrying costs and surprises. Lenders may ask for a slightly larger down payment until you've got a few completed projects behind you, but experience isn't a hard requirement.

What I tell newer investors is to over-budget the rehab and the timeline. The deals that go sideways are almost never the ones where someone planned for things to take longer and cost more.

Bridge loans

A bridge loan covers the gap between buying a new property and selling or refinancing another. Investors use them to move on an opportunity before existing capital frees up.

They're also useful mid-project, when permanent financing is lined up but delayed. eBoost Partners offers bridge construction financing for exactly that situation. As always, a bridge is only as safe as the exit you've already arranged to pay it off.

Rates, points, and costs

Fix and flip loans run higher than conventional mortgages — roughly 9 to 12% plus 1 to 3 points up front. That reflects the speed and the short term.

On a short hold, the rate matters less than people expect. A 10% rate for five months costs far less in total than the profit you'd lose by missing the deal entirely.

Budget the carrying costs honestly. Interest, insurance, taxes, and utilities run the whole time you own the property, so every extra month of rehab eats margin.

If your strategy leans more toward ground-up building than buying and rehabbing, compare these against commercial construction loans, which fund new construction in draws.

Best fix and flip and hard money lenders

These lenders rate highest for investors, judged on speed, how much of the purchase and rehab they fund, and how they treat newer borrowers. If you also need capital for the business behind your deals, eBoost Partners can match you through its financing for construction businesses.

How to apply

Lead with the deal. Lenders want the property address, your purchase price, your rehab scope and budget, and your ARV with comparable sales to back it up.

Have proof of reserves ready, since lenders want to see you can cover carrying costs and overruns. A track record of past projects helps but isn't mandatory for your first one.

Then compare offers on more than the rate — advance rate, points, draw process, and speed all change your real return. If you also run a contracting operation alongside investing, a construction business loan can fund the company side while flip loans fund the deals.

When you've got a deal in hand, pre-qualify with a soft credit pull and compare lenders — no impact to your score.