What Are Lenders Looking for Before Approving a Fix and Flip Deal?

Question

For investors working on fix and flips, it seems like the conversation often starts with the loan amount. In my experience, the numbers behind the deal are just as important.

A few things worth having prepared before approaching a lender:

• Purchase price and current property condition
• Detailed renovation budget
• Realistic after-repair value (ARV)
• Comparable sales supporting the ARV
• Estimated timeline for the project
• Planned exit strategy
• Borrower experience and completed projects
• Available liquidity and overall capital structure

One thing I've noticed is that a deal can look very attractive based on ARV alone, but the numbers can change significantly once purchase price, rehab costs, carrying costs, closing costs, and the exit strategy are all considered.

For experienced investors and lenders here:

What are the biggest factors that make you comfortable or uncomfortable with a fix-and-flip deal?

And for newer investors:

What part of the financing process was the hardest to understand when you completed your first project?

Nicholas Floyd · Answer

One thing that I found that works for my fix and flip clients is business funding for the reason of

1. 0%apr for 9-12 months( if the apr period runs out we do a rinse and repeat

2. the utilization doesn't report to the credit bureaus, so you can spend however you need to without worrying about your credit score dropping due to utilization

3. I have a relationship with the underwriters of the banks, I know there lending requirements as well as how there business needs to be structured so it's an automatic approval

Renard Brown · Answer

From our desk as a direct lender, here is what shifts a file from "risky" to "funded" in our underwriting room:

What Makes Us Comfortable

Detailed Scope of Work (SOW): A line-itemized rehab budget with contractor bids and a 10% to 15% contingency reserve. Generic, single-line numbers for a full renovation are an immediate red flag.

Realistic Draw Schedule & Liquidity: Fix-and-flip loans work on a draw-reimbursement model. We want to ensure the borrower has enough liquid reserves to fund the first scope of work before requesting their initial inspection draw, plus 3–6 months of holding costs.

Hyper-Local ARV Comps: Comps within a 0.5-mile radius, matching property style, age, and square footage. Pushing for an ARV based on an outlier sale across a major highway or in a different school district adds unnecessary risk.

A Viable Plan B (Dual Exit Strategy): We love seeing an investor who targets a retail sale (Plan A), but also has the numbers underwritten to refinance into a long-term DSCR loan (Plan B) if market conditions shift or retail buyers slow down.

What Creates Discomfort

Timeline Optimism: Expecting a complete gut job or structural addition to finish, stage, list, and close within 60 to 90 days. Permitting alone can eat up weeks.

Zero Contingency: Assuming nothing will go wrong once walls are opened up.

High Leverage with Zero Skin in the Game: Borrowers expecting 100% total cost financing with zero cash reserves or liquidity buffer.

Key Takeaway for Newer Investors

The hardest lesson for first-time flippers to wrap their heads around is the draw reimbursement process. Many assume the lender hands over 100% of the rehab money at closing. In reality, you must complete the work first, pass a quick draw inspection, and then receive the funds. Having strong initial liquidity keeps your project moving smoothly without contractor delays.

📲 Have a Fix & Flip or Bridge deal you'd like us to underwrite?

Mike Klarman · Answer

So, they wait for the appraisal.  They'll let anyone apply, put their own numbers down on the application for ARV and if they pass the credit and want to order the appraisal the lender will have no problem because the appraisal is on the borrower.  Once the appraisal comes back, now we have as-is numbers, ARV numbers, you can get a rent study done.  Now the loan parameters can be set, and they can be wildly different than what the applicant was quoted because the numbers are different.  The appraisal is what the lender really relies on to tell the story of the property and its potential.

That's why when appraisers are not honest as the case in Philly and Balt and other cities, it screws up the entire industry.

Ron Barrett · Answer

Yeah, that makes sense. At the end of the day, the appraisal really helps determine how the lender can structure the deal. If the numbers come back different than expected, the terms can change pretty quickly. Definitely important to have realistic numbers going in! Thanks Mike

Esteban Arrapalo · Answer

For a fix and flip, the following is asked to underwrite the investor AND the deal.

- experience (how many completed projects in the last 36 months)

- minimum credit (usually 680 or above is acceptable)

Then you focus on the deal, location, price, rehab and after repair value.

I hope the above helps.

Stacy Raskin · Answer

The fix and flip deal is being underwritten based on the property purchase price, the location (for example, what state is it located in, is it rural or a declining market), borrower credit score, line item rehab budget and ARV.

Generally, if rural, it will be much more difficult to get fix and flip financing. Declining markets make it more difficult as well. The state that the property is located in matters as lender options vary state by state. Analyzing all of those details will be considered to see if there's a potential deal, and if so, what loan to value on the purchase price will be offered to the investor.

Stacy Raskin · Answer

Thanks Ron for your response- I appreciate it.