Funding Mistakes New Fix-and-Flip Investors Make
Introduction: Choosing the Right Loan for Your Investment
Funding is the lifeblood of a successful fix-and-flip project. New investors often make errors that delay or derail deals—from underestimating costs to missing deadlines or failing to organize essential documents.
In this guide, we’ll cover the top funding mistakes fix-and-flip beginners make, why they happen, and how to prevent them so you can approach your next rehab project with confidence.
Mistake #1: Not Understanding Loan Requirements
Many beginners assume all loans work the same. Hard money and rehab loans each have specific requirements.
Why it matters:
Using the wrong loan structure can slow down approvals.
Lenders will expect certain documentation before approving your rehab loan.
Pro Tip:
Know the lender’s requirements upfront. Have your proof of funds, credit info, and experience documentation ready.
Mistake #2: Missing Deadlines and Critical Dates
Lenders care about closing dates, inspection periods, and draw schedules.
Common errors:
Delays in submitting documents for underwriting
Mismanaging construction draw timelines
Not accounting for lender review or inspection periods
Why it hurts:
Delayed funding can increase costs or create penalties
Loan approval may be revoked if deadlines are missed
Pro Tip:
Keep a detailed project calendar for every milestone
Confirm all dates with your lender earlyHard Money vs DSCR: Key Differences
Mistake #3: Poor Document Organization
Disorganized paperwork slows approval and may signal risk to lenders.
Key documents for fix-and-flip loans:
Borrower docs: ID, credit report, proof of funds, experience
Project docs: PSA, appraisal, inspection reports, scope of work (aka rehab budget)
Insurance binders
Pro Tip:
Organize in cloud folders by category: Borrower | Project | Company
Make it easy for lenders to review and approve quickly
Mistake #4: Underestimating Costs
New investors often fail to budget for:
Down payment & “skin in the game”: money reserved for construction draws, contingencies, and closing costs
Closing costs: lender points, insurance, taxes, and realtor fees
Holding costs: loan interest, property taxes, utilities during rehab
Contingency reserves: unexpected construction or market delays
Pro Tip:
Plan a budget buffer of at least 10–15% above projected rehab costs
Mistake #5: Not Vetting Lenders
Not all lenders are rehab-friendly. Some require higher down payments for low credit scores, foreign nationals, or limited experience.
Pro Tip:
Ask for recommendations from experienced fix-and-flip investors
Confirm the lender is comfortable funding your property type and loan size
Mistake #6: Not Understanding Loan Terms
Many beginners don’t fully grasp:
LTV (Loan-to-Value): the ratio of your loan amount to the property’s ARV (after repair value)
Construction draws: how and when funds are released during rehab
Interest-only loans: typical for rehab projects, meaning monthly payments are interest only until project completion
Term sheet vs underwriting: term sheet gives estimated terms; final approval comes after underwriting
Pro Tip:
Review the term sheet carefully and make sure your project budget accounts for lender fees, interest, and any contingencies
Mistake #7: Not Getting Prequalified
Submitting offers without prequalification can create uncertainty.
Why it matters:
You may not have enough funds to close
You could lose credibility with sellers or delay the rehab timeline
Pro Tip:
Have proof of funds letters ready
Know your borrowing limits before placing offers
Pulse Check: Are You Ready to Flip?
Before you start your next project, ask yourself:
Do I have enough funds in reserve for down payment, construction, and contingencies?
Do I have a reliable team (GC, inspector, insurance, etc.)?
Have I researched the local market to ensure demand for flips?
Conclusion
Avoiding these funding mistakes is critical to completing successful fix-and-flip projects. By understanding loan requirements, staying organized, budgeting properly, and working with the right lender, you can approach each rehab with confidence.
✅ Ready to fund your next fix-and-flip? Submit your deal today