As a fix and flip professional, you probably have experience with home remodeling. Making sure you generate enough revenue from the sale requires managing materials and labor wisely.

It’s also smart to know everything you can about loan options. The better you understand fix and flip financing, the lower you can keep your costs and the bigger your potential profits can be.

What Makes Fix and Flip Loans Different?

Financing for house flipping is designed to help you reach two objectives: purchasing a piece of real estate and remodeling it. You’ve probably heard of this type of financing called bridge loans, hard money loans or rehab loans. There’s a slight difference, though; bridge loans don’t always provide funds for the home improvement aspect, whereas fix and flip loans do.

How does this kind of loan differ from a traditional mortgage? Most mortgages are designed for owner-occupied properties or long-term real estate investments. They offer lower interest rates and extend payments up to 25 years. These loans also have downsides, such as taking months to get approved and having strict credit score requirements.

Loans for house flippers are fast; they have to be. When you’re rehabbing properties for a living, you need to take advantage of excellent deals as soon as they appear. You need financing in days, not months.

What Happens During the Fix and Flip Process?

The terms of this type of loan are suited for house flipping. You get a set amount of funds to help with the property purchase and a separate amount of funds for the remodeling portion of the project. The objective is to complete the project as soon as possible and pay off the loan with the proceeds from the sale.

The first step is to apply for a loan. Unlike long-term loan applications, the credit score requirements and documentation needed for bridge loans are easy to meet. You mainly need to provide information about the property you’re interested in purchasing, the materials you need and your goals for the project. Materials and labor costs should be detailed by phase.

The next step is to purchase the property. You generally need a down payment. Fix and flip loans often cover 60–70% of the purchase price.

After that, remodeling begins. Depending on the terms of the loan, you may need to purchase the initial materials yourself, or the lender may provide a starting amount. Other financing is provided as your project meets each stage in the renovation process.