Key Takeaways
- Fix and flip financing is capped by two ratios, not one. A fix and flip lender sizes your loan against loan to cost (LTC) and loan to after-repair value (LTARV), then funds the lower number.
- LTC measures what you spend. It compares the loan to your purchase price plus rehab budget. Many lenders fund up to roughly 85% to 90% of total project costs on strong deals.
- LTARV measures what the finished house is worth. Caps commonly land around 65% to 75% of the after-repair value (ARV), which protects the lender if the flip stalls.
- The lower ratio wins. Whichever limit gives the smaller loan sets your funding, and you cover the gap with cash.
- The 70% rule is a screening tool, not a lender rule. It helps real estate investors decide whether a deal leaves enough margin before they ever apply.
- Credit score matters less than the deal. Fix and flip loans are asset-based, so the property, budget, and your experience carry more weight than they do with traditional mortgages.
- Run both ratios before you make an offer. Knowing your true cash-to-close protects your return and speeds up closing.
What Is Fix and Flip Financing?
Fix and flip financing is short-term funding built for investors who buy a distressed property, renovate it, and sell it for a profit. Instead of the 30-year structure of traditional mortgages, these fix and flip loans usually run 6 to 18 months, carry interest-only payments, and focus on the property's potential rather than your tax returns.
That difference shapes everything about how a fix and flip lender thinks. A bank underwriting a home loan asks, "Can this borrower repay us for 30 years?" A flip financing lender asks, "If this deal goes sideways, is the property worth enough to get our money back?"
That question is answered with two ratios: LTC and LTARV. If you understand them, you can predict how much money a lender will actually put into your deal before you submit a single document.
What Is Loan to Cost (LTC)?
Loan to cost compares the loan amount to your total project costs. In a typical fix and flip, project costs include:
- The purchase price
- The renovation budget
- Sometimes closing costs, holdback fees, or interest reserves, depending on the lender
LTC formula:
Loan amount ÷ (Purchase price + Rehab budget) = LTC
If you buy a house for $220,000 and budget $60,000 in repairs, your total project cost is $280,000. A lender offering 90% LTC would fund up to $252,000, and you would bring about $28,000 plus closing costs and points.
Many lenders structure this as a percentage of the purchase price at closing, with rehab funds released in draws as work is completed. Some offer higher leverage to experienced investors, while newer investors may see lower LTC limits.
What Is Loan to After-Repair Value (LTARV)?
Loan to ARV compares the loan amount to what the property should be worth after the renovation is finished. ARV is typically supported by an appraisal or broker price opinion that uses recent comparable sales.
LTARV formula:
Loan amount ÷ After-repair value = LTARV
If the ARV is $400,000 and the lender caps LTARV at 70%, the maximum loan is $280,000, no matter how little you are paying for the house.
Why does this cap exist? Because the lender's real exposure is the sale price. If you default and the lender has to take the property back, they need to sell it at market value, pay costs, and still recover their principal. A 70% LTARV cap leaves a cushion for exactly that.
LTC vs LTARV: Which One Limits Your Loan?
This is the part most new investors miss. A fix and flip lender does not choose the more generous number. It uses the lower one. You qualify for the smaller of:
- Your LTC limit × total project costs
- Your LTARV limit × ARV
Here are two examples using a 90% LTC limit and a 70% LTARV cap.
Deal A: Strong Margin
- Purchase price: $220,000
- Rehab budget: $60,000
- Total project costs: $280,000
- After-repair value: $400,000
- 90% LTC: $252,000
- 70% LTARV: $280,000
- Funded loan (lower number): $252,000
- Investor cash needed (before fees): $28,000
On Deal A, LTC is the limiting factor. The ARV is high enough that the lender is comfortable, so your cash in the deal is simply the 10% LTC gap.
Deal B: Thin Margin
- Purchase price: $220,000
- Rehab budget: $60,000
- Total project costs: $280,000
- After-repair value: $340,000
- 90% LTC: $252,000
- 70% LTARV: $238,000
- Funded loan (lower number): $238,000
- Investor cash needed (before fees): $42,000
Same purchase price, same rehab, same lender. But because the ARV is lower, LTARV becomes the limit and your cash requirement jumps by $14,000. That is the real cost of a thin deal, and it is invisible if you only look at LTC.
These figures are illustrations only. Actual limits vary by lender, borrower experience, property type, and market.
How the 70% Rule Fits In
The 70 rule (also called the 70% rule) is a quick screen used by real estate investors to estimate the most they should pay for a flip:
Maximum purchase price = (ARV × 70%) − Rehab costs
Applying it to our examples:
- Deal A: ($400,000 × 0.70) − $60,000 = $220,000. The purchase price lands exactly on the maximum, so the deal passes.
- Deal B: ($340,000 × 0.70) − $60,000 = $178,000. A $220,000 purchase price is $42,000 over the limit, so the deal fails the screen.
The $42,000 overage in Deal B matches the total project-cost gap before fees, not the increase over Deal A. The additional cash compared with Deal A is $14,000. In these examples, the 70% screening rule and a 70% LTARV cap use the same percentage, but they serve different purposes: screening profitability versus limiting lender exposure.
The rule is a filter, not a law. In a hot market, some investors accept a 75% ratio. In a slow one, 65% may be safer. Use it to decide which deals deserve a full analysis, then confirm the numbers with your lender.
What Else Affects How Much a Lender Will Fund?
LTC and LTARV set the ceiling, but several other factors move you up or down inside it.
Experience. Experienced investors with a track record of completed flips often qualify for higher leverage, lower rates, and faster draws. First-time flippers may face lower caps or be asked to bring more cash.
Credit score. Because fix and flip loans are asset-based, credit score is usually a secondary factor. Most lenders still check it, and a stronger score can improve interest rates and terms. But a flexible fix and flip lender will focus on the deal first.
Interest rates and fees. Expect higher interest rates than traditional mortgages, plus origination points. This is the price of speed and flexibility. Always compare the total cost of the loan across your expected hold time, not just the headline rate.
Rehab budget quality. A detailed scope of work with contractor bids gives a lender confidence. Vague budgets lead to lower funding or more conservative draw schedules.
Property type and location. Single-family homes in stable neighborhoods usually get better terms than unusual properties or thin markets.
Loan terms. Term length, extension options, prepayment penalties, and draw procedures all affect your true cost and your risk. Read them closely. See The Hidden Cost of Junk Fees.
How Fix and Flip Loans Compare to Other Funding
Investors often ask whether other sources can replace a fix and flip loan:
- Traditional mortgages: Lower rates, but slow underwriting, strict income documentation, and limited fit for properties in poor condition. They rarely cover renovation costs and can't match fast closings.
- Home equity lines of credit (HELOCs): Useful for smaller projects or as a source of down payment cash, since you borrow against equity in another property. The risk is that your primary residence secures the debt.
- Cash or partners: Simple, but it ties up capital that could fund several investment properties at once.
- Hard money loan or private money loan: The core of flip financing. Funding is based on the asset, speed is the priority, and terms are built around short project timelines.
Many investors blend these: a HELOC for the down payment, a fix and flip loan for the purchase and rehab, and a long-term DSCR or rental loan if they decide to keep the property instead of selling.
Practical Steps to Size Your Deal Before You Apply
- Estimate ARV conservatively. Read ARV Explained: How Lenders Verify After-Repair Value. Use sold comps from the last three to six months within a close radius, not listing prices.
- Build a line-item rehab budget using How to Estimate Rehab Costs Like a Professional Real Estate Investor with a contingency of 10% to 15%.
- Run the 70% rule to screen the purchase price.
- Calculate both LTC and LTARV at your lender's published limits and take the lower number.
- Add your cash needs: the gap, closing costs, points, interest reserve, and holding costs.
- Check your return on the actual cash invested, not just the sale price minus the purchase price.
- Confirm timing. Fast closings only help if your documents, insurance, and scope of work are ready. Review Documents Required to Get Approved for a Fix-and-Flip Loan.
Why the Right Fix and Flip Lender Matters
Two lenders can quote the same ratios and still produce very different outcomes. Look closely at draw speed, how the ARV is determined, whether rehab funds are held back or advanced, and how often you can reach a decision-maker when a project changes.
A good fix and flip lender acts as a deal partner: clear on the numbers up front, quick on closings, and consistent when you're mid-project. That reliability often matters more than shaving a fraction of a point off the rate.
Explore ProLend Capital’s borrower financing options and our funding process. If you have a deal in mind, submit your application or contact our team with the address, purchase price, rehab scope, and estimated ARV to discuss your financing options before you commit.
Frequently Asked Questions
What is the difference between LTC and LTARV?
LTC compares the loan to the total cost of the project (purchase plus rehab). LTARV compares the loan to the property's estimated value after repairs. A fix and flip lender calculates both and funds the lower amount.
How much will a fix and flip lender fund?
It varies by lender and borrower, but many fund up to about 85% to 90% of project costs and cap the loan at roughly 65% to 75% of ARV. Experienced investors often qualify for the higher end.
What is the 70% rule in fix and flip projects?
The 70% rule says you should pay no more than 70% of the after-repair value minus the renovation cost. It is a screening guideline for real estate investors, not a requirement set by lenders.
Does my credit score matter for fix and flip loans?
Yes, but less than with traditional mortgages. Fix and flip loans are primarily based on the property and the deal, though a stronger credit score can help with interest rates and terms.
How long are fix and flip loan terms?
Most loan terms run from 6 to 18 months, usually with interest-only payments and a balloon payoff at sale or refinance.
Can I use a HELOC for the down payment on a flip?
Many investors do, because a home equity line of credit can supply cash for the gap between the loan and total costs. Remember that it is secured by your home equity, so factor in that risk.
How fast can a fix and flip loan close?
Because underwriting centers on the property rather than personal income documentation, many private lenders can close in days to a couple of weeks, provided title, insurance, and the rehab scope are ready.
This article is for educational purposes only and is not financial or legal advice. Loan terms, ratios, and availability vary by lender, borrower, and property.