Fund the Flip: How to Compare Rehab Loans and Plan Your Cash

Most flippers use short-term loans, often called hard money or fix-and-flip loans, to buy and renovate. These loans close faster and lend on the property more than on your income, but they cost more than a regular mortgage. Understanding the full cost is the difference between a profitable deal and a thin one.

Step 1: Read the term sheet

Look for these items on every offer:

• Loan amount: often expressed as a percentage of the purchase price, of the total cost, or of the after-repair value.
• Rehab holdback: the part of the loan held back for renovation and released in draws as work is completed.
• Rate: the annual interest rate, and whether it's fixed or floating.
• Points: an up-front fee, as a percentage of the loan.
• Fees: processing, underwriting, document preparation and draw inspections.
• Term and extensions: how long you have, and what it costs to extend.
• Minimum interest: some loans charge a minimum number of months even if you repay early.

Step 2: Turn it into one number

A rate alone doesn't tell you what a loan costs. The Hard Money Loan Cost tool adds interest, points and fees and shows the effective annual cost. On short projects, points can add several percentage points to the true rate.

Step 3: Compare offers on your timeline

A lower rate with more points can cost more if you repay quickly. Enter both offers in Compare Two Lenders. It shows which is cheaper at your timeline and the month at which the answer flips.

If a lender offers to lower your rate in exchange for more points, Points vs. Rate shows how long it takes to pay back.

Step 4: Plan your cash

Even with a high loan percentage, you'll bring cash to closing for the down payment, points, fees and closing costs. Rehab draws usually reimburse work after it's done, so you'll need cash to get started. Cash to Close adds it up, including reserves for monthly payments. The Draw Schedule Planner maps each draw to a milestone and shows the interest it adds.

Step 5: Ask the questions that matter

• How fast can you close, and what do you need from me?
• How do draws work, and how long after an inspection is money released?
• Is interest charged on the full loan or only on funds drawn?
• What happens if the project runs past the term?

Tools for this stage

• Hard Money Loan Cost: the true cost of a loan
• Compare Two Lenders: side-by-side offers
• Points vs. Rate: is a buy-down worth it?
• Cash to Close: the cash you'll need
• Draw Schedule Planner: what your rehab draws cost