Fix and Flip Financing: A Guide to Funding Options

If you’ve ever dreamed of flipping houses for profit, you know how crucial financing is to making it all happen. Whether you’re a seasoned investor or just getting started, understanding fix and flip financing can mean the difference between a successful project and a costly mistake.

Not surprisingly, many fix and flip projects do not qualify with traditional banks. While banks are willing to finance single family homes, and very large investment properties, most 1-4 unit projects for investment do not qualify. That’s where many fix and flip lenders have carved out a niche. In this guide, we’ll break down everything you need to know about raising capital from fix and flip financing companies.

What is Fix and Flip Financing?

Fix and flip financing is a type of short-term loan that helps real estate investors buy, renovate, and sell properties for profit. Unlike traditional mortgages that stretch over decades, these loans usually last 6 to 18 months, giving investors just enough time to purchase a property, make improvements, and sell it at a higher price. Since these properties often need major repairs, traditional banks aren’t always willing to fund them—this is where alternative financing options come in for Ohio investors.

Types of Fix and Flip Loans

There’s no one-size-fits-all approach to financing a flip. Here are the most common loan types and how they work:

1. Hard Money Loans

Hard money loans are one of the most popular fix and flip financing options. They come from private lenders rather than traditional banks and are primarily based on the property’s value rather than your credit score.

Why Investors Love Them

• Fast approvals – You can get funding in days, not weeks or months.
• Flexible terms – Private lenders can be more accommodating than banks.
• Easier qualifications – Approval is based on the property’s potential, not your financial history.

The Downsides to Hard Money Loans

• High interest rates – Typically 10-14%, much higher than conventional loans.
• Short terms – Repayment is due within 6-18 months.
• Additional fees – Expect origination fees and points that increase your overall cost.

2. Business Line of Credit

A business line of credit (LOC) is another flexible option, allowing you to withdraw funds as needed rather than taking out a lump sum loan for an Ohio-based project.

Pros

• Lower interest rates compared to hard money loans.
• Only pay interest on what you use.
• Great for covering unexpected renovation costs.

Cons

• Requires a strong credit profile to qualify.
• Lower borrowing limits than hard money loans.

3. Home Equity Loan or HELOC

If you already own a home with significant equity, you might be able to use a home equity loan or HELOC to finance your fix and flip project.

Benefits

• Lower interest rates than most fix and flip loans.
• No hard money lender fees.

Risks

• Your home is collateral, meaning you could lose it if you default.
• Not ideal for quick access to funds—approval can take longer.

Key Components of Fix and Flip Loans

Understanding loan terms will help you choose the right financing and avoid surprises. Here are the most important factors lenders consider:

Loan-to-Value (LTV) Ratio

LTV compares your loan amount to the property’s current value. Most fix and flip lenders will finance up to 85% of the purchase price, meaning you’ll need to cover the remaining 15% out of pocket. If you have a long track record in the Ohio real estate market, you may get up to 95% LTV.

Loan-to-Cost (LTC) Ratio

LTC is similar to LTV but includes both the purchase price and renovation costs. Some lenders will finance up to 90% of the total project cost, but you still need to contribute your own capital.

After-Repair Value (ARV)

ARV is the estimated value of the property after renovations. Most lenders will only finance up to 70% of the ARV to ensure there’s enough room for you to make a profit.

Interest Rates and Fees

Fix and flip loans come with higher costs than traditional mortgages. Expect:

• Interest rates between 10-14%
• Origination fees of 1-3%
• Short repayment terms (6-18 months)

Loan Term

Unlike standard mortgages, fix and flip loans have short repayment windows. This works well for investors who plan to renovate and sell quickly but can be risky if the project takes longer than expected.

Pros and Cons of Fix and Flip Loans

Before you dive in, let’s weigh the advantages and potential pitfalls.

Pros

Fast approval and funding – Get money in days instead of weeks.

Flexible qualifications – Based on the property’s value rather than your credit score.

Short terms – No long-term debt to worry about.

Cons

High interest rates – Expect to pay significantly more than a traditional mortgage.

Short repayment periods – If the project takes longer than expected, you may struggle to pay off the loan.

Potential for unexpected costs – Renovations often uncover hidden issues, increasing your expenses.

How to Qualify for Fix and Flip Financing

While each lender has different requirements. Other than being based in Cleveland, Columbus, Cincinnati, or some other Ohio region – here’s what they typically look for:

• Credit Score – A minimum of 620 is usually required, though hard money lenders may be more lenient.
• Down Payment – Expect to put down 10-20% of the property’s purchase price.
• Real Estate Experience – Some lenders prefer working with investors who have previous fix and flip experience.

How to Secure Fix and Flip Financing in 5 Steps

Ready to apply? Follow these steps to increase your chances of getting approved:

1. Research lenders – Compare options and find the best terms for your project.
2. Prepare your documents – Have your credit report, income verification, and renovation budget ready.
3. Get a property appraisal – Lenders will want to know the current value and projected ARV.
4. Apply for the loan – Submit your application and wait for approval.
5. Close and fund – Once approved, review the terms carefully and finalize the deal.

Final Thoughts

Fix and flip financing is essential for Ohio real estate investors looking to turn distressed properties into profitable ventures. By understanding your loan options, key terms, and potential risks, you can make informed decisions and maximize your investment returns in the region.

Before you commit to any loan, always compare lenders, crunch the numbers, and have a solid exit strategy in place. With the right financing and a well-executed plan, you’ll be on your way to a successful fix and flip business in Cleveland, Columbus, or elsewhere!