How Do Private Money Lenders Underwrite a Fix-and-Flip Loan?
Short answer: A private money lender underwrites a fix-and-flip loan around two things — the property and the exit plan — not your credit score or W-2 income. The lender estimates the home’s After-Repair Value (ARV), caps the loan at roughly 65–75% of that ARV (or a percentage of total project cost, whichever is lower), confirms your renovation budget and timeline are realistic, and verifies you have a clear way to repay: a sale or a refinance. Approvals often happen in days rather than weeks because the analysis centers on the asset, not the borrower’s tax returns.
By Andrew J. Liersch III — Founder & CIO, Slingshot Investments. 10+ years in private lending, $500M+ funded. Former Wells Fargo Private Mortgage Banking, Bear Stearns, and Deloitte Consulting.
What private lenders actually evaluate
Banks underwrite the borrower. Private money lenders underwrite the deal. That single difference explains almost everything about how fix-and-flip financing works.
A conventional mortgage looks backward at your income history, debt-to-income ratio, and FICO score. A private lender looks forward at the project: what the property is worth today, what it will be worth once the work is done, and how confident we are that the numbers close the gap with room to spare. Because the loan is secured by real estate and structured for a short hold, the asset carries the risk — so the asset gets the scrutiny.
At Slingshot, we underwrite three questions in order: Is the asset sound? Is the budget real? Is the exit credible? If all three hold up, the borrower’s credit profile becomes a secondary consideration rather than a gate.
The two numbers that set your loan amount
Every fix-and-flip loan is governed by two ratios, and the lender uses whichever produces the lower loan amount.
Loan-to-Value against ARV (ARV-LTV). ARV is the appraised market value of the property after renovations are complete. Most private lenders finance up to 65–75% of ARV, with experienced borrowers occasionally reaching 80%. If a San Diego property will be worth $800,000 finished and your lender caps at 70% ARV, the maximum exposure is $560,000.
Loan-to-Cost (LTC). This measures the loan against your total project cost — purchase price plus renovation budget. Lenders commonly fund up to 80–90% of cost, requiring you to bring the remaining equity.
The lender takes the lesser of the two figures. That structure is deliberate: it keeps a safety margin in the deal so that if the market softens or the rehab runs over, there’s still equity protecting the loan. This is why a clean, defensible ARV matters so much — it sets the ceiling on what you can borrow.
What fix-and-flip loan terms look like in 2026
Private money costs more than a bank loan, and it should — you’re paying for speed, flexibility, and a lender who underwrites the opportunity instead of the paperwork. As of 2026, typical terms run:
- Interest rate: roughly 9–12%, interest-only. Stronger borrowers and lower-leverage deals price toward the bottom of that range.
- Points (origination): generally 1.5–3 points paid at closing.
- Term: 6 to 18 months, with 12 months the most common.
- Funding speed: many private lenders close in 7–14 days versus 30–45 days for conventional financing.
- Draw schedule: renovation funds are usually held back and released in stages as work is completed and inspected, rather than handed over up front.
These are market ranges, not quotes. Pricing on any individual deal moves with leverage, borrower experience, property type, and the strength of the exit.
Why the exit plan decides the deal
The single most underweighted part of a fix-and-flip application is the exit. A lender isn’t just asking can you finish the project — we’re asking how do we get repaid. There are only two real answers: you sell, or you refinance into longer-term financing.
A credible exit means the resale comps support your ARV, the timeline leaves margin before the loan matures, and there’s a fallback if the first plan stalls. A flip that pencils only if everything goes perfectly isn’t a financeable exit — it’s a hope. When we underwrite a deal at Slingshot, a realistic exit with a built-in cushion will move a marginal file forward faster than a high credit score ever could.
Does your credit score matter at all?
It matters less than borrowers expect, but it isn’t ignored. Private lenders place heavy emphasis on the deal, yet a borrower’s experience and overall financial stability still factor into pricing and leverage. A track record of completed projects can earn you better terms and higher LTV. A thin or troubled credit history won’t necessarily kill a strong deal, but it may mean more equity in, a lower advance, or a slightly higher rate. The asset leads; the borrower’s profile fine-tunes.
How fix-and-flip underwriting works in San Diego specifically
California’s housing fundamentals — tight inventory, durable buyer demand, and high underlying values — make well-executed flips attractive, and they also raise the stakes on accurate underwriting. In a high-cost market like San Diego, small errors in ARV translate into large dollar swings, so disciplined comp analysis and a defensible renovation scope matter more here than almost anywhere else.
Local knowledge is part of the underwrite. A lender who understands the difference between neighborhoods, knows how coastal versus inland comps behave, and recognizes which renovation scopes the local buyer pool will actually pay for is underwriting a more accurate exit than one running national averages. That’s the difference between financing the spreadsheet and financing the deal.
Frequently asked questions
How fast can a private lender close a fix-and-flip loan? Many private lenders fund in 7–14 days, and some move faster on clean deals, compared with 30–45 days for a conventional loan. Speed comes from underwriting the asset rather than chasing income documentation.
What credit score do I need for a fix-and-flip loan? There’s no universal minimum because the property and exit drive approval. Credit affects pricing and leverage more than the yes-or-no decision. A strong deal can close with imperfect credit.
How much money do I need to put into a flip? Plan to bring the gap between the loan and total project cost. With LTC commonly around 80–90% and ARV capped near 65–75%, most borrowers contribute meaningful equity plus closing costs and carrying reserves.
What is ARV and why does it matter so much? ARV is the property’s projected value after renovations. It sets the ceiling on your loan amount and is the foundation of the exit. An inflated ARV is the most common reason a deal that looks profitable on paper loses money in practice.
Is a private money loan the same as a hard money loan? The terms overlap heavily and are often used interchangeably. Both are asset-based, short-term, and exit-focused. “Private money” typically emphasizes lending from a direct private capital source with more flexibility to structure around the specific deal.
Thinking about financing a project?
Slingshot Investments is a San Diego-based private lender specializing in non-owner-occupied real estate redevelopment and rehabilitation. We underwrite the asset and the exit — and we move at the speed real deals require. If you have a project in front of you, reach out for a straight answer on whether it pencils.
