You can't use a conventional 30-year mortgage to buy a distressed house that needs $50K in work — no traditional lender will touch it. Flip financing is a different world with its own products, terms, and trade-offs. Understanding your options (and their true costs) is just as important as finding the right deal.
The Options at a Glance
| Financing Type | Typical Rate | Speed to Close | Covers Rehab? | Best For |
|---|---|---|---|---|
| Hard Money Loan | 10–14% | 7–14 days | Yes (most) | Most flippers, speed-critical deals |
| Private Money | 8–12% | 3–10 days | Negotiable | Relationship-based, repeat flippers |
| HELOC | 7–10% | 2–4 weeks | Yes (from draws) | Homeowners with equity |
| Cash | 0% | Same day | Yes | Maximum negotiating power |
| Partnership | Profit split | Varies | Depends on partner | Low capital, high hustle |
| Business Line of Credit | 8–12% | 1–3 weeks | Yes | Experienced flippers with business history |
Hard Money Loans: The Standard Flip Financing
Hard money is the default for most flippers. These are short-term, asset-based loans from specialized lenders who focus on the deal, not your personal income. They evaluate the property's ARV and your rehab plan, fund both the purchase and renovation, and charge higher rates in exchange for speed and flexibility.
Typical terms: 10-14% interest (annual), 1-3 origination points, 6-12 month term, interest-only payments, 80-90% of purchase price funded, 100% of rehab funded (drawn in stages), minimum credit score ~620-660.
Purchase Price: $180,000 (lender funds 85% = $153,000)
Rehab: $45,000 (lender funds 100%)
Total Loan: $198,000
Your Cash In: $27,000 (down payment) + $6,000 (closing/points) = $33,000
Interest (12%, 5 months): $198,000 × 0.12 ÷ 12 × 5 = $9,900
Origination (2 points): $3,960
Total Financing Cost: $13,860
That $13,860 in financing costs needs to come out of your profit margin. This is why the 70% rule exists — the 30% margin has to cover these costs plus your profit.
How to find hard money lenders
Local real estate investor meetups are the best source — ask other flippers who they use. Online directories like BiggerPockets, Connected Investors, and Scotsman Guide list lenders by market. National lenders like Kiavi, Lima One, and Groundfloor are available in most states. Always compare at least 3 lenders on rate, points, fees, draw process, and extension terms.
Private Money: Relationship-Based Lending
Private money comes from individuals — not institutions. It might be a family member, a friend, a fellow investor, or someone you met at a networking event who has capital to deploy. The terms are negotiated directly between you and the lender.
Advantages: Typically lower rates than hard money (8-12%), more flexible terms, faster closing (no institutional underwriting), no points or lower points, and the relationship can be long-term across many deals.
Disadvantages: You need to find the people. Private money doesn't advertise. You're also mixing money with personal relationships, which requires clear documentation, professionalism, and transparency.
Always use a promissory note and deed of trust/mortgage for private money, even with family. This protects both parties legally and gives the lender a secured position on the property. Have a real estate attorney draft the documents.
HELOC: Leverage Your Primary Residence
If you own a home with significant equity, a Home Equity Line of Credit (HELOC) can be one of the cheapest ways to fund flips. You borrow against your home's equity, use the funds for the purchase and rehab, then repay the HELOC when you sell the flip.
Advantages: Lower rates (typically prime + 1-2%, currently around 7-10%), interest-only during the draw period, no origination points, reusable for multiple flips.
Disadvantages: Your primary home is the collateral — if the flip goes badly, you risk your house. Approval takes 2-4 weeks (not fast enough for competitive deals). Credit score and DTI requirements are strict.
Using a HELOC to flip houses puts your primary residence at risk. Only use a HELOC for flips if you have strong reserves, conservative deal analysis, and can survive the worst-case scenario of the flip losing money without it threatening your housing situation.
All Cash: Maximum Power, Limited Scale
Cash buyers get the best deals. Sellers prefer cash because it closes faster, has no financing contingency, and is more certain to close. You'll often win deals at 5-10% below what a financed buyer would pay.
Advantages: Strongest negotiating position, fastest closing (can close in days), no interest costs, no approval process, no risk of loan falling through.
Disadvantages: Ties up all your capital in one deal. If you have $200K in cash, you can do one cash flip or three leveraged flips simultaneously. Most experienced flippers choose leverage for this reason — the return on capital is higher when you spread it across multiple deals.
Partnerships: Capital + Skills
If you have the skills and deal-finding ability but not the capital, a partnership can work. A typical structure: the money partner funds the deal (100% of capital), the active partner manages the project (finding, buying, rehabbing, selling), and profits are split 50/50 or 60/40 in favor of the active partner who is doing the work.
This is a great way to get started with limited capital, but be aware: a 50/50 profit split means your effective "financing cost" is 50% of the profit — far more expensive than any loan. Partnerships make sense when you have no other option or when the deal is too large for you to fund alone.
Which Financing Should You Use?
| Your Situation | Best Option |
|---|---|
| First flip, limited capital | Hard money or partnership |
| Homeowner with equity | HELOC (if risk-appropriate) |
| Experienced with deal flow | Private money network |
| Large cash reserves, single deal | Cash |
| Want to scale to 5+ flips/year | Hard money + private money mix |
| Established flipping business | Business line of credit |
Model Your Financing Costs
CapRateKit's Fix & Flip calculator lets you enter your specific financing terms — rate, points, loan amount, hold period — and see exactly how they affect your bottom line.
Try CapRateKit Free →Frequently Asked Questions
Can I get a conventional mortgage for a flip?
Generally no. Conventional lenders require the property to be livable and won't fund purchases that need significant work. They also take 30-45 days to close, which is too slow for most flip deals. Conventional mortgages are designed for primary residences and stabilized investment properties — not active renovation projects.
What credit score do I need for a hard money loan?
Most hard money lenders have a minimum around 620-660, though some go lower with higher down payments and rates. Hard money is primarily asset-based — they care more about the deal (ARV, loan-to-value, your rehab plan) than your personal credit. That said, better credit will get you better terms.
How do rehab draws work with hard money?
The lender funds rehab costs in stages called "draws." You complete a portion of the work, the lender sends an inspector to verify, then they release funds for that phase. A typical draw schedule might be 3-4 draws: demo/rough work, mechanical/systems, finish work, and final. You usually need to fund work upfront and get reimbursed, so keep cash reserves available for each phase.
Can I use the same financing for BRRRR?
Yes — hard money and private money work for the initial purchase and rehab phase of BRRRR. The difference is your exit: instead of selling, you refinance into a long-term loan (DSCR loan or conventional) and pay off the hard money. The refinance replaces the sale as your exit strategy. See our BRRRR guide for the full process.