Fix & Flip Financing: Reading the Leverage Stack Like a Lender
Key takeaways
- Three constraints price every flip: % of purchase (LTC), % of rehab funded, and the all-in ARV ceiling.
- Verified experience (HUDs/deeds) moves leverage more than credit score does.
- Draws reimburse after inspection — borrowers front each phase; budget the working capital.
- The exit is the underwrite: resale comps or a pre-flighted DSCR refi, documented up front.
Flip financing looks exotic from the conventional side and mechanical once you've run one: the lender advances a share of the purchase, funds the rehab in draws, and gets repaid by the exit in 12–24 months. The whole quote lives in three numbers.
The three dials
- Loan-to-cost: 80–90% of the purchase price, tiered by experience.
- Rehab funding: up to 100% of the budget, released in arrears via inspected draws.
- ARV ceiling: total loan capped at 65–75% of after-repair value — the binding constraint on heavy rehabs.
A $300K purchase with an $80K budget and a $520K ARV pencils beautifully. The same deal at a $430K ARV hits the ceiling and demands more borrower cash — which is why lenders re-comp the ARV and why your borrower's optimism is the first thing to underwrite.
Experience is priced like collateral
Completed exits — documented with HUDs or deeds — are the strongest variable in the file. Tier breakpoints commonly land at one, three, and five projects; each tier buys higher LTC, cheaper points, and more rehab tolerance. First-timers still get funded: expect a step down in leverage, a step up in liquidity requirements, and often a licensed GC on the scope. A first-timer paired with an experienced GC reads two tiers better than one swinging a hammer solo.
Draws: the cash-flow reality nobody explains
Rehab money reimburses — it doesn't prepay. The borrower fronts demo, gets inspected, gets reimbursed, fronts the next phase. A borrower with the down payment but no working capital stalls at week three, and stalled projects eat interest. Put the draw schedule in the first conversation and you'll never have the ugly week-six phone call.
Exit-first origination
The refinance-into-DSCR exit (the BRRRR play) should be pre-flighted before the flip closes: will the ARV and market rent support the takeout at today's ratios? Running that scenario through the desk at application turns you from an order-taker into the investor's capital strategist — which is the relationship that produces a file every quarter.