Fix and Flip Loan Down Payment Essential Considerations

You can get a fix and flip loan for as little as 10% down.

However, small down payments are reserved for very experienced property flippers. Less seasoned investors may need 20-25% down.

The transaction and even the lender can affect your down payment level. In short, there’s no one-size-fits-all down payment for all investors, but you can get a lower down payment by knowing how lenders look at fix and flip projects.

Why fix and flip loans require a down payment

Down payments for fix and flip loans reduce risk for lenders, ensuring borrowers have a financial stake in the project.

This requirement encourages responsible borrowing, promotes careful planning, and increases the likelihood of a successful property flip.

More “vanilla” projects (a simple and straightforward project) and experienced home flippers are typically able to secure lower down payments.

However, there are ways you can improve your odds to be approved for a lower down payment.

Factors that affect a fix and flip down payment

To calculate what sort of down payment you’ll need, and give yourself a chance for the best rate, let’s review the crucial aspects of a fix and flip down payment.

The borrower’s experience

A borrower’s experience in renovation or fix and flip investments can impact the required down payment for a fix and flip loan.

Lenders may offer lower down payment requirements to experienced investors, as their proven track record reduces the lender’s risk and increases the likelihood of a successful project.

Property type

Single-family homes, considered the safest and easiest properties to flip, offer multiple financing options upon completion.

In contrast, condos, multi-family, or mixed-use properties pose additional challenges and typically require experienced investors. Lenders often increase down payment requirements by 5% for these riskier property types to account for the added complexity and potential pitfalls associated with their successful flipping.

Type of flip

Are you considering a straightforward flip with minimal cosmetic repairs and a focus on curb appeal? Alternatively, are you tackling a complex flip that demands extensive rehab work or adding square footage?

More intricate projects necessitate larger down payment levels.

Size of the flip

Many investors aspire to level up their investments, eyeing bigger properties for potentially larger profits.

However, increased size also means heightened risk. If you’re targeting a luxury beachfront property with a potential half-million-dollar profit, be prepared for a heftier down payment because there’s also more to lose.

Unique and high-value properties often have extended marketing lead times and present additional factors for lenders to evaluate.

Total cost

Some lenders advertise 90% loan-to-value (LTV) loans, covering 100% of rehab costs, primarily targeting highly experienced flippers. However, these loans may have drawbacks.

Most lenders won’t allow you to exceed 90% of the total loan cost for any project. For example, if the property acquisition plus repairs will be $200,000, your total loan likely can’t exceed $180,000, even with a very generous lender.

If you aim to finance your rehab alongside the flip and qualify for 90%, expect a down payment ranging from 11% to 12%, factoring in the total project cost.

Detailed terms help both parties understand the deal and avoid unwelcome surprises.

Is the down payment based on the property price or total cost?

Down payment requirements for fix and flip loans can be based on either the property price or the total cost of the project, depending on the lender’s terms.

Some lenders finance 80-90% of the property acquisition cost and cover 100% of repair expenses. In contrast, others may limit the loan to 90% of the total project cost, including both acquisition and rehab expenses.

This distinction means borrowers might need to provide more than a 10% down payment on the property, as the bottom line will include additional expenses like repairs.

New fix and flip investors must thoroughly review a lender’s terms to accurately calculate the required down payment for their fix and flip project.

After-repair value will limit your loan

A crucial piece of understanding your fix and flip loan is that most lenders cap fix and flip loans at 70-75% of the after-repair value (ARV), directly affecting their required down payment amounts.

After-Repair Value (ARV) is the estimated market value of a property after completing all necessary repairs and renovations, reflecting what it might sell for.

If the property’s upside—its post-renovation value—is limited, you might need a larger down payment to secure the loan.

To maximize your return on investment (ROI) and minimize down payment requirements, focus on properties requiring relatively inexpensive cosmetic fixes. Avoid properties in need of costly structural repairs, roofing, or other updates that average buyers won’t pay extra for.

Kitchens and bathrooms are particularly valuable areas to target for improvements, as they significantly influence a property’s overall appeal and value.

Fix and flip down payment FAQ

How to apply for a fix and flip loan

1. Shop around for lenders: The terms, conditions, communication styles, and service levels vary between lenders. Their requirements for down payments and the interest rates they might offer will also vary. If you find a lender’s offer is stretching you too thin, check out the competition.
2. Prepare Necessary Documents: Gather essential documents like the detailed scope of work for the project, exit strategy, and costs and timelines.
3. Analyze Property Details: Evaluate the property’s purchase price, estimated repair costs, and projected after-repair value (ARV). Ensure the numbers align with your lender’s terms and conditions.
4. Submit Loan Application: Complete the loan application provided by your chosen lender, attaching all required documents and information.
5. Undergo Appraisal Process: Participate in the lender’s appraisal process, which may involve property visits or evaluations from third-party appraisers, to determine the property’s current and potential future value.
6. Review Loan Terms: Carefully review the loan terms, including interest rates, repayment schedule, and any fees associated with the loan.
7. Close the Loan: If the loan terms are agreeable, proceed to close the loan, sign the necessary documents, and receive the funds to begin your fix and flip project.

Following these steps, you can smoothly navigate the application process and secure a fix and flip loan tailored to your investment needs.

Fix and flip loan requirements—the bottom line

By understanding how lenders assess fix and flip projects and making your proposal as attractive as possible, you’ll increase your chances of securing a lower down payment.

Remember to shop around and thoroughly review a lender’s terms to accurately calculate the required down payment for your project.