What Makes a Fix and Flip Loan Different From Traditional Financing?

Real estate investors renovating properties often need financing that accommodates both acquisition and construction expenses. Traditional mortgage financing may not always be structured around this type of short-term project. Fix and flip loans provide an alternative financing structure designed for investors purchasing properties that need improvements before being sold or refinanced.

One major difference is how the property and borrower are evaluated. Asset-based financing can focus heavily on the property's current condition, renovation plan, projected after-repair value, and loan-to-cost ratio. Lenders may also review credit and construction experience. This differs from financing approaches that place substantial emphasis on employment income and traditional income documentation. Requirements still vary between lenders, so investors should review each program individually.

The way renovation funds are provided can also differ. A lender may approve financing for the overall project while releasing renovation funds through scheduled draws as work progresses. This can connect funding with construction milestones. Investors should understand the draw requirements, documentation, and timing before beginning a renovation because available capital needs to match the project's cash-flow requirements.

The cost structure is another important consideration. Interest represents the ongoing borrowing cost, while points are generally paid upfront at closing. Lender fees may also contribute to the overall expense. Comparing the complete financing cost helps investors understand how the loan affects the project's financial calculations rather than focusing on a single rate.

InstaLend's published program offers up to 95% of total project cost, with a maximum 90% LTC, for eligible 1–4 unit single-family residential properties. Loan amounts range from $50,000 to $5 million or more, with 12-month terms and extensions available. The program states that no income verification is required and lists a minimum FICO score of 660, along with a licensed general contractor or prior construction experience.

These are program-specific terms and do not represent requirements for every lender. Investors comparing fix and flip financing should examine the property's numbers, renovation scope, total financing costs, and intended exit strategy before choosing a loan structure.