Fix & Flip / Rehab Bridge Loans

Two numbers decide the loan

A rehab bridge loan is sized against total project cost and against after-repair value, and the lower of the two results governs. Total project cost is the purchase price plus the renovation budget; the loan advances up to 90% of that figure. After-repair value is what the finished property is worth; the loan cannot exceed 75% of it.

On a well-priced acquisition the cost test controls and the borrower brings roughly 10% of the project plus closing costs. On an aggressively priced acquisition, or one where the scope of work outruns the neighborhood, the ARV cap controls instead and required equity rises. Running both tests before going under contract is what separates a project that funds from one that gets repriced at underwriting.

The after-repair value has to be supported by closed comparable sales near the property, not by the ambition of the renovation plan. A finish level well above the surrounding market rarely produces a proportional appraisal, and the 25% cushion beneath ARV exists precisely because resale is the primary repayment path.

• Up to 90% of purchase plus renovation, whichever test is more restrictive
• 100% of the approved renovation budget is financed, not funded out of pocket
• Total loan is capped at 75% of the supported after-repair value
• Interest-only payments for a 12 to 24 month term with no prepayment penalty

How the renovation budget is advanced

The full renovation budget is approved at closing but held in a lender-controlled account rather than disbursed. The borrower completes a stage of work, requests a draw, an inspection confirms the work is in place, and the funds are reimbursed — typically within 48 hours of a cleared inspection. That mechanic protects both sides: the budget cannot be spent ahead of the work, and the borrower is not asked to carry the entire construction cost personally.

Interest is non-Dutch, which is a meaningful economic difference. Under a Dutch structure the borrower pays interest on the entire facility from day one, including the renovation holdback sitting undrawn. Non-Dutch charges interest only on funds actually advanced, so carry accumulates as the project draws rather than from closing. On a project where the rehab budget is a large share of total cost, that difference materially changes total interest paid.

Because draws reimburse completed work, sequencing matters. Front-loading long-lead items, keeping inspections on schedule and submitting complete draw requests are the practical levers that keep a renovation on its interest-only clock.

Planning the exit before closing

A rehab bridge is repaid one of two ways: the finished property sells, or it refinances into long-term debt. Both paths should be underwritten before the acquisition closes. For a sale, the test is the supported after-repair value less selling costs against the payoff. For a refinance, the test is whether the completed property’s market rent will cover a 30-year payment at the coverage ratio a rental loan requires.

Underwriting both exits at the outset also clarifies scope. A renovation aimed at resale optimizes for buyer appeal and appraisal support. A renovation aimed at a long-term hold optimizes for durable finishes, low maintenance and rent — and the finished property must clear a rental loan’s coverage test, not just an appraisal. There is no prepayment penalty, so whichever exit proves stronger at completion remains available.