Fix-and-Flip Loan Tennessee: How ARV, Loan-to-Cost and Draws Work

For Tennessee investors, a fix-and-flip loan is short-term financing that pays for both the purchase of an investment property and much of its renovation, with the loan repaid when the finished home is sold or refinanced into a long-term mortgage.

Fix-and-flip loans belong to a category the Urban Institute calls residential transition loans, a modernized version of what was once known as hard money lending. According to the institute's April 2026 report on the sector, these loans are business-purpose credit made to investors, generally through corporate entities, on non-owner-occupied one-to-four-family and small multifamily properties. They typically run nine to 36 months, are usually interest-only with a balloon payment due at maturity, and are underwritten with more weight on the property's value than on the borrower's income. Lenders still look at the borrower: the report notes that the loans are typically supported by a personal guaranty from the entity's owner and a credit check and, for loans with a renovation component, a review of the investor's experience, construction budget and cash reserves.

How do lenders size a fix-and-flip loan in Tennessee?

Three ratios do most of the work, according to the Urban Institute. The loan-to-as-is-value ratio compares the loan with the property's current value and is usually no greater than 75% to 80%. The loan-to-cost ratio compares the loan with the purchase price plus the renovation budget and can reach 95% to 100% for renovation projects. The loan-to-after-repaired-value ratio, based on an estimate of what the home will be worth once the work is done, is usually no greater than 65% to 70%. When more than one limit applies, the tightest one sets the loan amount.

After-repair value, or ARV, is the estimate at the center of the deal. Lenders rely on appraisals and comparable sales to decide whether the projected value supports the financing. Many investors screen deals with the so-called 70% rule, keeping purchase and renovation costs below about 70% of ARV, while lenders apply their own underwriting standards rather than a single formula; that screen sits near the Urban Institute's usual loan-to-after-repaired-value ceiling of 65% to 70%.

As an illustration only, consider a hypothetical Tennessee house bought for $250,000 with a $60,000 renovation budget and an estimated ARV of $400,000. A lender advancing 90% of the purchase price and 100% of the rehab budget would reach $285,000 on cost alone. A 70% cap on after-repair value would hold the loan to $280,000, about 90% of the $310,000 total cost, leaving the investor to bring $30,000 plus closing and carrying costs. The same numbers show why the 70% screen matters: $310,000 is more than 70% of the projected value, so the deal leaves less room for overruns or a softer resale price.

How do rehab draws work on a fix-and-flip loan?

The renovation money is usually not handed over at closing. Fix-and-flip and ground-up construction loans typically include draw features in which part of the loan is disbursed at milestones, according to the Urban Institute; the funds are sometimes placed in escrow at closing and sometimes held as an unfunded commitment that the lender pays out in phases. Baseline, a loan-management software provider for private lenders, describes the structure as an initial advance wired at closing to fund the purchase and a construction holdback released in stages as work is completed and verified through inspections or draw requests. Draws are generally reimbursements rather than advances, meaning the work must be finished before it is funded, Baseline says.

That timing shapes how much cash an investor needs. Most fix-and-flip lenders look for a credit score in the mid-600s or higher, though minimums vary by program; Baseline notes that FICO minimums typically sit around 660 to 680, with better terms available above 720. Some lenders charge interest only on funds that have been disbursed, so investors comparing offers should ask how interest, inspection fees and draw turnaround times are handled.

What Tennessee costs and rules should flippers plan for?

Tennessee levies two recordation taxes that apply to a typical financed purchase. The realty transfer tax is $0.37 per $100 of the purchase price and is paid by the buyer, and the mortgage tax is $0.115 per $100 of indebtedness, with the first $2,000 exempt, according to the Tennessee Department of Revenue. On the hypothetical deal above, that works out to about $925 in transfer tax on the purchase and about $320 in mortgage tax on a $280,000 loan.

Contractor licensing also matters. Tennessee requires a contractor's license before bidding or contracting on projects of $25,000 or more, according to the state Board for Licensing Contractors. A separate home improvement license applies to residential remodeling projects from $3,000 to $24,999 in counties that have adopted that law, which include Davidson, Robertson and Rutherford in Middle Tennessee.

Time is the cost that compounds. Nationally, the typical flip in the second quarter of 2026 took 161 days from purchase to resale, and the typical gross profit, which excludes renovation and holding costs, was $60,526, a 21.5% margin over the purchase price, according to ATTOM. ATTOM notes that experienced flippers estimate those excluded costs at 20% to 33% of a property's after-repair value. Among metro areas with more than 1 million people, Memphis posted one of the highest flipping rates in that quarter, at 9.5% of all home sales. In Middle Tennessee, listings across 10 counties took 63 days to reach contract in September 2026, according to Realtracs data compiled by Grant Hammond, a broker with Compass RE, a pace that affects how long an investor carries an interest-only loan before a sale. Iron Hill Brief has reported on Nashville's jump in new listings as asking prices dipped, conditions that shape resale timing.

Not every flip ends in a sale. Some investors keep the renovated home as a rental and refinance the short-term loan into a long-term rental mortgage, an exit the Urban Institute describes; Iron Hill Brief's guide to how a DSCR loan in Tennessee measures rent against the payment covers that path. Investors can estimate a long-term payment with the Iron Hill Mortgage monthly payment calculator.

Frequently asked questions

What is ARV on a fix-and-flip loan? After-repair value is the estimated value of the property once the planned renovation is complete. Lenders use it, supported by an appraisal and comparable sales, to cap the loan, often at 65% to 75% of that value.

What is the difference between loan-to-cost and loan-to-value? Loan-to-cost measures the loan against the purchase price plus the renovation budget. Loan-to-value measures it against the property's value, either as is or after repairs. The lower limit usually controls.

Can a fix-and-flip loan be used on a home I will live in? No. These are business-purpose loans on non-owner-occupied properties, generally made to an investor's company rather than to an owner-occupant.

Working on a Tennessee rental or flip? Talk with an Iron Hill loan advisor: text Ashley at 615-949-4780 or book a time here. Iron Hill Mortgage | NMLS #1946451 | Equal Housing Opportunity.

Sources

• Urban Institute, Stergios Theologides, "The Evolution of Residential Transition Lending," April 2026: https://www.urban.org/sites/default/files/2026-04/Final_The_Evolution_of_Residential_Transition_Housing%20%281%29.pdf
• Baseline, "Fix & Flip Loans: The Complete Guide": https://www.baselinesoftware.com/resources/articles/fix_and_flip_loans_complete_guide
• Tennessee Department of Revenue, Recordation Tax, Due Date and Tax Rates: https://www.tn.gov/revenue/taxes/local-taxes/recordation-taxes/due-date-tax-rate.html
• Tennessee Board for Licensing Contractors, Contractor license: https://www.tn.gov/commerce/regboards/contractors/license/get/contractor.html
• Tennessee Board for Licensing Contractors, Home Improvement Contractor: https://www.tn.gov/commerce/regboards/contractors/license/get/home-improvement.html
• ATTOM, "Home Flipping Profits Continue Gradual Two-Year Decline," Q2 2026 U.S. Home Flipping Report, Oct. 1, 2026: https://www.attomdata.com/news/market-trends/flipping/home-flipping-profits-continue-gradual-two-year-decline/
• Grant Hammond, Compass RE, "Middle Tennessee Real Estate Market Update September 2026," Realtracs MLS data with Oct. 4 report date: https://www.granthammond.com/market-analysis/nashville-housing-market/middle-tennessee-real-estate-market-update-september-2026/