The Quick Read: A hard money commitment is the bridge lender’s written, conditional promise to fund a purchase and rehab, and it only works as a BRRRR step when the DSCR refinance that later pays it off is sized before the commitment is accepted, because the exit lender’s appraisal and rent test, not the bridge terms, set the payoff capacity. This article covers real estate lending only, not syndication “hard commitments” or any other use of the phrase.
- Hard money leverage is tiered by experience, reaching up to 93% of project cost for the most experienced investors, always capped at 75% of after-repair value. It varies by lender, property, and experience.
- A DSCR cash-out refinance on a standard investment rental typically tops out at 75% LTV, with about 6 months of seasoning measured from title recording.
- A DSCR rate-and-term refinance can reach up to 85% LTV but returns no cash at closing, subject to lender guidelines.
- DSCR compares rent to PITIA only. Clearing the coverage floor is not the same as positive cash flow.
What Is a Hard Money Commitment, and What Isn’t It?
In practice, a hard money commitment is a term sheet or approval letter that fixes the leverage, the draw schedule, and the loan term for a specific property. It stays conditional on the appraisal, clean title, insurance, and entity paperwork. No statute or regulator defines it as a formal instrument, so how binding it is depends on the document’s wording and on any deposits attached to it.
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The documents get confused constantly. This is how they usually differ:
| Document | What it signals | Binding? |
|---|---|---|
| Proof of funds | Borrower has cash on hand | No |
| Term sheet or letter of intent | Lender’s proposed terms on one property | Usually not |
| Commitment | Lender will fund if conditions clear | Conditional |
| Closing and funding | Money moves through title | Yes |
The point of the distinction is simple. A commitment only protects a BRRRR investor on the way in. Nothing in it promises the loan that pays the bridge off.
How Hard Money Commitment Funding Works Step by Step
Hard money funds through the title company like any other mortgage. Here is the sequence on a typical BRRRR file.
1. Commitment. The lender issues terms covering leverage, draws, and term. Across the network, terms typically run 6 to 18 months, interest-only, with no prepayment penalty. The exact structure varies by lender, property, and experience.
2. Closing. The purchase funds at the tiered loan-to-project-cost level, capped at 75% of after-repair value. Fix-and-flip tiers run 85% of project cost with fewer than two completed projects, 90% at two or more, and 93% at five or more. The top tier is reserved for experienced investors. Nothing in the network is a true 100% purchase program.
3. Rehab holdback. The lender holds the rehab budget back. Up to 100% of the rehab budget can fund in draws against completed work. That figure applies to the rehab budget only, never to the purchase.
4. Draws. The borrower submits photos or invoices, the lender may inspect, and funds are released against finished work. Every invoice and photo set becomes part of the file the exit lender may later ask for.
5. Payoff grows. Interest, any extension fee, and any exit fee add to the balance. That grown balance is the number the next loan must clear.
6. Refinance. The title company pays off the bridge lien from the new loan’s proceeds and records the release.
AirDNA’s BRRRR explainer describes the same pattern: most investors use short-term loans to buy and renovate, then refinance into a long-term mortgage. The commitment governs only the first half of that sentence.
How Does the DSCR Lender Size the Exit?
The exit lender sizes the new loan from its own appraisal and its own rent figure. Your projected after-repair value is a planning number. It does not set the loan amount.
A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. The ratio is monthly rent divided by PITIA: principal, interest, taxes, insurance, and any HOA dues. For a fuller walk-through, Lendmire’s complete DSCR loans guide covers the program basics.
Two separate tests apply, and the lower result controls the loan.
- Value test. The loan is capped by LTV on appraised value. Before seasoning clears, many programs size on the lower of appraised value or cost basis, meaning purchase price plus documented rehab.
- Rent test. The rent figure divided by PITIA at the new, larger loan size must meet the program floor. A DSCR of 1.00 is where many select programs start. A separate select-lender path goes below 1.00, with leverage and terms adjusted. Stronger ratios open better pricing and leverage.
The two tests interact. A bigger loan lowers the coverage ratio, so a generous appraisal cannot fix thin rent. Equally, strong rent cannot fix a weak appraisal.
| Factor | Hard money bridge | DSCR exit loan |
|---|---|---|
| Sized on | Project cost, capped at 75% of ARV | Appraised value and rent |
| Income test | None; asset-based | Rent vs PITIA |
| Term | 6-18 months, interest-only | 30-year fixed spine |
| Credit floor | 620 minimum | 620 floor; most want about 660 |
For the DSCR column, credit tiers run from a 620 floor in parts of the network, to most programs wanting around 660, to 700 and above for the strongest leverage. Reserves are commonly around 6 months of PITIA, stepping up to about 9 months on loans above $1,500,000. Conservative rate-and-term files at modest leverage can sometimes see reserves waived. Standard loan sizes run up to $3,000,000, and every file is underwritten individually.
Why Can a Fully Funded Bridge Still Leave a Gap?
The bridge is sized on cost and projected value. The exit is sized on appraised value and rent. Those are different yardsticks, and the gap between them is where BRRRR files stall.
Consider the arithmetic. A bridge sized near the 75%-of-ARV cap already sits at the same ceiling as a DSCR cash-out refinance on a standard rental. Add accrued interest and fees, and the payoff exceeds what 75% of even a full-value appraisal will retire. That investor brings cash to closing before the appraisal even slips.
The planning formula is simple. Divide the payoff plus exit costs by the cash-out LTV cap, and the result is the lowest appraisal that retires the bridge. This is planning math, not an industry standard.
The next table uses modeled index points, where the target ARV equals 100. It assumes a bridge payoff, including accrued interest and fees, of 70 points, and a 75% DSCR cash-out ceiling.
| Appraisal (% of target ARV) | New loan at 75% | Payoff | Result before costs and reserves |
|---|---|---|---|
| 100 | 75.00 | 70 | +5.00 |
| 95 | 71.25 | 70 | +1.25 |
| 90 | 67.50 | 70 | -2.50 |
| 85 | 63.75 | 70 | -6.25 |
Under those assumptions, the break-even appraisal is about 93.3% of the target, since 70 divided by 0.75 is 93.3. Closing costs and required reserves come out of the thin positive margin, so the practical break-even sits higher.
A common screening guideline, which Motley Fool’s BRRRR definition states as total cost near 70% of ARV, is a purchase screen. It is not an exit-sizing tool. Passing it at purchase says nothing about what the appraiser and the rent test will produce later.
Working Backward From the Note’s Maturity
Start with the maturity date and count backward. A 6-to-18-month term feels generous until the phases are laid end to end.
| Phase | What happens | What to confirm |
|---|---|---|
| Before purchase | Commitment and exit lender chosen | Exit lender’s leverage cap and credit floor |
| Rehab | Draws funded against work | Budget, invoices, inspections |
| Lease-up | Tenant placed | Lease and rent support |
| Seasoning | Ownership clock runs | About 6 months from title recording |
| Application | Exit file assembled | Entity papers, draw history |
| Appraisal | Exit lender orders value and rent opinion | Comps support the target |
| Payoff | Lien released through title | Payoff statement ready |
In Lendmire’s network materials, the seasoning clock starts at the recorded deed, not at rehab completion or lease-up. It is lender policy rather than law. A 12-month bridge with a 9-month rehab leaves very little cushion if the DSCR cash-out refinance expects about 6 months of seasoning, so the term should be chosen with that clock in mind.
Seasoning also costs money. Every month on the bridge adds interest to the payoff, so shortening the rehab shrinks the number the exit has to clear.
Payoff-Only or Cash-Out? Decide at the Commitment Stage
A refinance that only retires the bridge and returns no cash typically sits on the rate-and-term line. A DSCR rate-and-term refinance can reach up to 85% LTV on an investment property, subject to lender guidelines. Any refinance that returns cash falls on the cash-out line instead. A DSCR cash-out refinance on a standard rental tops out around 75% LTV, with about 6 months of seasoning.
The choice should shape the bridge. If the plan is payoff-only, the bridge can be sized more aggressively because the exit ceiling is higher. If the plan is to pull cash for the next purchase, the bridge has to be sized conservatively so the equity actually exists after payoff and reserves.
Short-term rental collateral changes the numbers. A DSCR cash-out refinance on a short-term rental typically sits near 70% LTV, with about 12 months of hosting history expected. Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income.
Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Where the Rules Break: Edge Cases
Delayed financing is an agency exception, not a DSCR rescue. The Fannie Mae Selling Guide lists a Delayed Financing Exception to its cash-out ownership wait. An archived version of the guide requires an arm’s-length original purchase. The exception is built for cash buyers. A purchase financed by a lien on the same property generally does not fit it, and DSCR loans are not agency products, so it does not govern them.
Early exit inside seasoning. If the investor exits before the seasoning clock clears, a DSCR loan may be sized on cost basis instead of appraised value. That can leave the bridge only partly paid off.
The bridge matures first. The options are a payoff-only refinance, a paid extension, cash to closing, or waiting. Each costs something, and the extension adds to the payoff.
Appraisal shortfall. The new loan shrinks by the cap times the miss, while the payoff stays fixed. Remedies include bringing cash, taking a smaller loan, waiting, or asking for a reconsideration of value backed by closed comps.
Rent shortfall. Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted. It is a deliberate structure rather than a fix for a mispriced deal. If the numbers only work at sub-1.00 in every neighborhood the investor is considering, that is a signal to revisit the purchase.
Thin-equity buys. Paying near the top of the leverage tiers on a project that needed deeper equity usually means the refinance cannot recover everything. The exit may still work, but the investor should expect to leave some cash in the deal.
Ineligible property types. Manufactured homes (single- and double-wide), log homes, and barndominiums are not offered through the network’s DSCR programs, so a BRRRR plan built on one has no DSCR exit.
DSCR vs. conventional financing
There are two common ways to finance an investment property, and they qualify you differently — here’s how investors weigh them.
Why investors choose it
- Qualifies on the property’s rental income — no personal tax returns, W-2s, or pay stubs needed to document income.
- No personal debt-to-income ceiling to clear, so existing mortgages and obligations don’t cap your borrowing the same way.
- Can be closed in an LLC, keeping the property inside a business entity.
- Built for scaling — not held to the limit on number of financed properties that conventional financing applies.
- Underwriting centers on the deal: generally qualifies when the rent covers the payment, a 1.00x coverage ratio being a common baseline (confirmed in underwriting).
- Designed specifically for investment property, including long-term and, where the program allows, short-term rentals.
Where it’s strong
- Often the lowest ongoing financing cost for a buyer who fully qualifies on personal income — a fit for a first property or a cost-first purchase.
Trade-offs for investors
- Requires full personal income documentation and must fit within a debt-to-income limit — salary, existing debts, and other mortgages all count.
- Typically held in your personal name rather than a business entity.
- Caps how many financed properties you can carry, which can become a ceiling as a portfolio grows.
- Evaluates you as a borrower as much as the property, which usually means more paperwork.
How investors usually choose: a first or single property often optimizes for the lowest financing cost; portfolio builders often optimize for leverage, vesting in an LLC, and scaling past conventional caps. The right answer depends on your goals, the property, and current guidelines — both paths run through select lenders in Lendmire’s wholesale network, with eligibility and terms confirmed in underwriting.
Key Terms Defined
Commitment: A lender’s written, conditional promise to fund a loan on stated terms.
Term sheet or letter of intent: A document that lays out proposed terms before underwriting finishes.
Proof of funds: Evidence that a borrower has cash available, not a promise from any lender.
Takeout: The longer-term loan that pays the bridge off.
Seasoning: The ownership period a lender expects before it will size a cash-out loan on appraised value.
ARV versus appraised value: ARV is the investor’s projection; appraised value is what the exit lender’s appraiser concludes.
PITIA: Principal, interest, taxes, insurance, and any HOA dues, the payment that rent is measured against.
Exit-Readiness Checklist and Common Mistakes
Before accepting a commitment, an investor can check these items:
- Confirm the exit lender’s leverage cap, credit floor, and seasoning rule in writing.
- Run the break-even appraisal using the payoff with interest and extension fees, not the original principal.
- Confirm the DSCR loan test passes at the larger loan size, not at the bridge amount.
- Ask the bridge lender about extension options and payoff mechanics.
- Keep the settlement statement, draw history, invoices, lease, and payoff statement with the entity documents.
- Budget for closing costs and reserves, which can absorb the cash-out proceeds.
The recurring mistakes follow the same pattern. Investors treat their ARV as the loan basis. They assume seasoning begins when the rehab ends. They treat a DSCR above 1.00 as proof of positive cash flow, when the ratio leaves out vacancy, repairs, management, utilities, and capex. They also assume a refinance returns all invested cash, when cash back is a small difference between two large numbers.
For a deeper look at the payoff process, Lendmire’s article How to Refinance Out of Hard Money Into a DSCR Loan After BRRRR walks through the mechanics. Investors who want to see the exit program itself can review the hard money exit refinance page.
Frequently Asked Questions
Is a hard money commitment the same as a pre-approval?
No. Pre-approval is a general estimate of what a borrower might qualify for. A commitment attaches to a specific property and fixes leverage, draw schedule, and term, though it stays conditional on appraisal, title, insurance, and entity documents.
Does a hard money commitment guarantee the DSCR refinance will work?
No. The two loans are underwritten separately, and the DSCR lender applies its own appraisal, rent test, and seasoning rule. Nothing in a bridge commitment binds the exit lender. That is why the exit lender’s guidelines should be reviewed before the commitment is accepted.
How much of the rehab does hard money fund?
Up to 100% of the rehab budget can fund in draws against completed work, while purchase leverage runs as a percentage of project cost, capped at 75% of after-repair value. These figures vary by lender, property, and experience.
What happens if the bridge matures before seasoning ends?
The investor generally has four choices: a payoff-only refinance, a paid extension, cash to closing, or waiting. Extensions add fees to the payoff, so a more affordable path is usually planning the term to cover the seasoning clock.
Can a DSCR loan retire the bridge if the appraisal comes in low?
It may, but the new loan shrinks as the appraisal drops while the payoff stays fixed. A DSCR cash-out refinance on a standard rental is capped around 75% LTV, so the investor may need to bring cash to closing. Qualification stays subject to lender guidelines, credit approval, and property review.
What Next
If you are buying, rehabbing, or refinancing an investment property on a short timeline and want to see how the numbers work, Lendmire can help you compare hard money options based on the project, the exit plan, leverage, and your goals. Programs change, every file is underwritten individually by the lender, and nothing here is a commitment to lend.
For current guidelines and terms, see Lendmire’s DSCR loan programs page.
About Lendmire
Lendmire — NMLS# 2371349 — is a DSCR and non-QM mortgage brokerage with investor loan programs in 41 markets, including Washington, D.C. DSCR eligibility is commonly reviewed by the lender around property-level rent rather than personal income documentation, subject to lender guidelines, and the brokerage helps arrange financing for LLC-owned portfolios beyond conventional financed-property limits. Recognized by Scotsman Guide as a Top Mortgage Workplace in 2025 and 2026.
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References
3. Fannie Mae Selling Guide B2-1.3-03
4. Fannie Mae Selling Guide B2-1.3-03 (archived 2023)
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.