What Lenders Consider When Reviewing a Fix and Flip Loan

 

A lender reviewing a fix and flip loan generally looks at more than the borrower's personal financial profile. Because the financing is tied to an investment property and renovation project, the lender needs to understand the property, the proposed improvements, and the numbers supporting the transaction. Requirements can vary between lenders, but several factors commonly form part of the review.

The property itself is an important consideration. Lenders may examine the property's type and current condition, along with the planned renovation scope. The purchase price and estimated renovation costs provide the basis for understanding the project's total cost. The projected after-repair value, or ARV, is also relevant because it estimates what the property could be worth after the planned improvements are completed.

Loan-to-cost is another important figure. LTC measures the loan amount against the total project cost, which includes the purchase and renovation expenses. A lender may use the requested LTC together with the property's ARV when determining how much financing the project can support. The requested leverage can also influence the pricing of the loan.

Borrower qualifications can form another part of the review. Credit profile and relevant construction or renovation experience may be considered. The exit strategy is also important because the lender needs to understand how the loan is expected to be repaid. The planned exit may involve selling the renovated property or refinancing it.

InstaLend's published fix and flip program provides a specific example of these requirements. The program is available for 1–4 unit single-family residential properties, requires a minimum FICO score of 660, and looks for a licensed general contractor or prior construction experience. W-2s and tax returns are not required. The program offers up to 95% of total project cost, with a maximum 90% loan-to-cost ratio. Investors researching fix and flip loans can use these categories to understand the information a lender may review before making a financing decision.