Renovation & Rehab Loans

What Are Renovation & Rehab Loans?

The properties with the most profit in them are usually the ones nobody else wants to touch — the dated, distressed, or beat-up houses that won't qualify for a conventional mortgage. That's the whole opportunity in a fix-and-flip or a BRRRR deal. The problem is, traditional financing won't fund a property in that condition, and even if it would, it moves far too slowly to win a competitive deal.

Renovation and rehab loans are built for exactly this. They're short-term, asset-based loans (often called fix-and-flip or hard money loans) that fund both the purchase and the renovation, then get paid off when you sell or refinance. The defining feature: they're underwritten primarily on the After-Repair Value (ARV) — what the property will be worth once the work is done — not its current condition or your personal income.

The structure has two parts. Acquisition funds are released at closing to buy the property. The renovation funds go into a rehab holdback and get released in stages as you complete the work. Most lenders finance up to around 85–90% of the purchase price and often up to 100% of the rehab budget, while capping the total loan at roughly 70–75% of ARV.

Which brings up the formula every flipper lives by — the 70% rule: don't pay more than 70% of ARV minus your renovation costs. On a property with an $800,000 ARV needing $100,000 in work, that's a maximum purchase price of $460,000. That spread absorbs your holding costs, financing, selling costs, and profit.

These loans are fast — many close in 5 to 14 days. The trade is cost: expect rates roughly in the 9–14% range plus points, with terms of about 6 to 18 months and interest-only payments. That's expensive money, but it's short-term money on a deal designed to be in and out quickly. What matters is the spread, not the rate.

Eligibility

The deal carries most of the weight, but lenders still vet the borrower and the plan:

• The deal / ARV — lenders cap total lending around 70–75% of After-Repair Value, so the project has to pencil out at that ratio.
• Down payment / skin in the game — typically 10–20% of the purchase; full financing is rare because lenders want you invested in the outcome.
• A credible scope of work (SOW) — a detailed, realistic renovation budget and timeline, ideally with licensed contractor estimates.
• A clear exit strategy — how you'll pay off the balloon: sell the property, or refinance into a long-term loan (the BRRRR path).
• Credit and reserves — often a minimum credit score around 620+, plus enough reserves to cover holding costs through the project.

Terms vary widely by lender and by your experience level. Bring a real deal and real numbers and you'll get real answers.