Financing Fix-and-Flip Properties: Loan Options

You can pay for a fix-and-flip project with a hard money loan, a loan from a private individual, equity from your own home, or cash from a partner. Low-down-payment renovation mortgages mostly do not fit: an FHA 203(k) loan requires you to live in the home, and Fannie Mae's HomeStyle Renovation loan allows a one-unit investment property but is a full-underwriting, long-term mortgage. Pick the option by total cost over your real timeline, because every month the project runs long adds interest, taxes, insurance, and utilities that reduce your profit at a given sale price.

For long-term rental loans, see tips for getting approved for an investment property mortgage.

Comparing the ways to pay for a flip

Hard money. Hard money flip loans, now often called residential transition loans, come from private lending companies. The Urban Institute's April 2026 report found rates of 9.5% to 11.5% in the preceding quarters, loans of up to 95% or 100% of purchase plus rehab cost, and a cap of 65% to 70% of after-repair value (ARV). Our hard money loans guide covers how those caps, points, and extensions work.

Private money. A friend, relative, or local investor lends you money secured by a mortgage or deed of trust on the flip. Rate, term, and payment schedule are negotiated. State usury limits and, if you raise money from several people, securities rules can apply; private money lending covers both.

Home equity. A home equity line of credit (HELOC) lets you borrow against your own home up to a limit, usually at a variable rate, for a draw period that can run about 10 years. You draw funds as the project needs them, make the monthly payments the agreement requires during the draw period, and pay off the balance when the flip sells. The trade-off is direct: if the flip loses money and you cannot repay, you could lose your home. Using a HELOC for investment property explains how lenders set the line.

Partners. An equity partner puts in cash and shares the profit instead of charging interest. Before you buy, put in a signed agreement whether the partner gets their cash back before profit is split, the split percentage, who pays for overruns, and who decides when and at what price to sell.

Why FHA 203(k) does not work for flips

FHA does not insure loans on investment properties, and the 203(k) rehab program follows that rule. At least one borrower must live in the home as a principal residence; FHA's standard rule is moving in within 60 days of closing and intending to stay at least a year. On a Standard 203(k), if the work keeps you out of the home, the lender can finance up to 12 months of mortgage payments into the loan for that period. Only HUD-approved nonprofits and government agencies may use 203(k) on a property they will not occupy. A 203(k) can still fund an owner-occupied project: the Limited 203(k) covers up to $75,000 of nonstructural repairs, and the Standard 203(k) covers larger work with a required HUD consultant. Living in the home for a year and then selling is a different plan from a flip, with a different timeline.

Fannie Mae HomeStyle on a one-unit rental or flip

HomeStyle Renovation allows a one-unit investment property. On a purchase, renovation costs can be up to 75% of the lesser of the price plus renovation costs or the as-completed appraised value. Your own labor cannot be reimbursed, and do-it-yourself work is capped at 10% of the as-completed value. Expect conventional underwriting of your income, credit, and reserves (savings left after closing), plus a renovation budget the lender approves and inspections of the work. Those steps make it a better fit for a project you might keep as a rental than for a quick resale.

Worked example: financing cost against projected profit

You buy a house for $250,000, plan $50,000 of work, and expect to sell for $400,000 after 8 months. The assumptions below are examples, not quotes:

• Hard money at 10.5% with 2 points, lending 80% of the price plus 100% of the rehab: $200,000 + $50,000 = $250,000, under the 70% ARV cap of $280,000.
• Purchase closing costs of 2% ($5,000); taxes, insurance, and utilities of $900 a month; selling costs of 7% ($28,000).
• Interest charged on the full $250,000 for all 8 months.

Your cash in the deal is $50,000 down plus closing costs, points, interest, and holding costs, about $84,700 in all.

Here is how the financing line changes with other sources on the same $250,000 for 8 months, assuming no points:

The cheaper options only work if the person lending has that much cash or your home has that much equity, and the HELOC puts your home at risk.

How draw schedules work

A rehab lender releases renovation funds according to the loan program and draw agreement. Funds held in escrow or as an unfunded commitment are released in stages:

1. You agree on a draw schedule at closing, tied to stages such as demolition, rough-in, drywall, and finishes, or to a line-item budget.
2. Check whether you must pay for each stage first. If draws reimburse completed work, budget cash to cover at least one stage. HomeStyle allows the lender to release up to 50% of planned renovation costs at closing.
3. You request a draw with invoices, photos, and often lien waivers from subcontractors and suppliers, showing they have been paid.
4. The lender inspects or reviews the work and releases funds matching what was finished. Some lenders hold back a share of each draw until the end; banks commonly hold 10% to 20% on commercial projects.

Private flip lenders can fund a draw within a day, while a slow draw leaves a contractor waiting and adds days to the schedule. Ask each lender for its average draw turnaround and fee per inspection.

What a schedule overrun costs

Interest and holding costs run every month whether work is happening or not, and many flip loans come due on a fixed date. In the example, a 3-month delay adds:

• Interest: $2,188 x 3 = $6,563
• Holding costs: $900 x 3 = $2,700
• Extension fee, assuming 1 point: $2,500

That is $11,763, cutting projected profit from $37,300 to $25,537, a drop of 32%. If the sale price also comes in 5% low ($380,000, with selling costs falling to $26,600), profit falls to about $6,900 on roughly $96,500 of your cash.

Before you buy, run the numbers with at least 3 extra months and a lower sale price, and confirm a backup exit. Refinancing and renting the property works as a backup only if the rent covers a long-term loan payment and the appraisal supports a loan large enough to repay the flip loan. For a conventional cash-out refinance, Fannie Mae also requires 6 months on title and a mortgage being paid off that is at least 12 months old, so a flip loan due in less than 12 months would need an extension first. The BRRRR strategy guide shows how to test the refinance.