The Quick Read: Hard money funds the renovation in staged draws against finished work, and the DSCR loan that follows pays that balance off; it never funds the rehab itself. Size the hard money loan backward from the refinance, and cover the cash float between draws yourself.
- The rehab budget sits in a holdback and is released as work is completed and inspected, generally by reimbursement.
- Hard money terms vary by lender, property, and experience; the program here runs 6-18 months, interest-only, with no prepayment penalty.
- Fix-and-flip leverage runs up to 93% of project cost at 5+ completed projects, always capped at 75% of after-repair value.
- The DSCR exit is limited to 75% LTV on a cash-out refinance, with about 6 months of seasoning, subject to lender guidelines.
- Overruns, slow inspections, and a short note term are what break the sequence.
Most rehab plans that fail on the way out were doomed at the first closing. The hard money loan was sized for the purchase and the work, but nobody checked it against what a long-term lender would actually pay off. The AirDNA BRRRR explainer describes the same pattern: short-term loans buy and renovate, then a refinance replaces them, and unexpected repair costs, refinancing hurdles, and market shifts are the named risks. This piece walks the mechanics from the first draw to the payoff. For the wider picture of how these loans fit together, see the complete DSCR loans guide.
DSCR Cash-Out Calculator
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Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 15, 2026
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As of Oct 15, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Property value, balance, taxes, and insurance are editable estimates. Maximum loan-to-value varies by lender, program, property type, and seasoning. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
Key Terms Defined
- Draw: a release of rehab money after a stage of work is done and checked.
- Holdback: the part of the hard money loan set aside for renovation and paid out in draws.
- Float: the cash you spend on work before a draw reimburses you.
- Cost basis: what you paid for the property plus documented rehab spending.
- ARV (after-repair value): the estimated value once the work is complete.
- Seasoning: how long you must own the property before a lender will size a cash-out loan on its new value.
- Payoff-only refinance: a refinance that clears the old loan and returns no cash.
How Do Rehab Draws Actually Work?
The renovation money is not paid to you at closing. The hard money loan splits into an acquisition advance and a rehab holdback. On the program described here, up to 100% of the rehab budget funds in draws against completed work. That is a rehab-budget figure, not a purchase LTV, and it varies by lender, property, and experience.
Each draw follows the same loop. You pay a contractor for a phase of work. You submit a request, usually with an updated budget, invoices, progress photos, and lien waivers. An inspector confirms the work exists. The lender then releases funds. The inspection is a check that work was done, not a review of quality.
Three practical points follow from that loop:
- Draws reimburse. You front the money, then get repaid. Many lenders pay in proportion to completion, so a phase that is half finished earns about half of that budget line.
- Only the agreed budget funds. If costs run over, the overrun comes out of your pocket. A re-budget is not automatic.
- Interest runs on drawn money only. The payoff grows with each draw, so slow work means a larger payoff on exit day.
Expect per-draw inspection and wire fees as well. They vary by lender, so read the draw terms in your own loan agreement before you commit.
How Much Cash Do You Need Between Draws?
More than the down payment. The float is the real cash demand on a hard money rehab, and it hits hardest at the start, when you pay for materials and mobilization before the first reimbursement arrives.
On the program parameters here, fix-and-flip leverage is 85% of project cost with fewer than 2 completed projects, 90% at 2+, and 93% at 5+, each capped at 75% of after-repair value. The uncovered share of cost is your equity. The float sits on top of it. Plan for both.
Three tactics shrink the float:
1. Slice the budget into small, finishable line items. A smaller phase gets inspected and reimbursed sooner than one large phase.
2. Order the work so early draws recycle. Do the work that clears inspection fastest first, then feed that reimbursement into the next phase.
3. Negotiate contractor payments around milestones, with deposits kept modest and final payment tied to the last draw.
Keep a contingency fund separate from your interest reserve. Mixing the two is how a plan that looked funded turns into a missed payment.
How Should You Size the Hard Money Loan for the Exit?
Work backward from the DSCR refinance. A DSCR cash-out refinance on a standard rental tops out at 75% LTV, with about 6 months of seasoning measured from title recording, per the program parameters. A DSCR rate-and-term refinance, which returns no cash, runs up to 85% LTV. Both are subject to lender guidelines, and the new lender’s appraisal sets the value, not your ARV.
The test is simple. Take the appraised value, multiply by the DSCR loan‘s LTV ceiling, and compare the result with your hard money payoff. If the payoff is larger, you bring cash to the refinance table or you stay in the bridge longer.
Here is where the overlap fails. Hard money leverage is measured against project cost and ARV, while the DSCR exit is measured against appraised value. A project financed at the top cost tier can leave you short at a 75% cash-out ceiling, especially if the appraisal lands under ARV. The payoff also includes interest on every drawn dollar and any fees. A cautious rule of thumb from The Motley Fool keeps purchase plus rehab at or below 70% of ARV. That is a heuristic, not a lender rule, but it explains why deals priced near the ARV ceiling struggle at takeout. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
A DSCR loan also tests rental coverage. The ratio compares monthly rent to the full monthly obligation: principal, interest, taxes, insurance, and any HOA dues. In this network, 1.00 is where many select programs start, and a separate select-lender path goes below 1.00 with leverage and terms adjusted. Clearing 1.00 does not mean positive cash flow. Repairs, vacancy, management, and utilities sit outside the calculation.
Credit matters on the exit too. The network’s DSCR tiers run 620, 660, 680, and 700, with 620 as the floor, and reserves are commonly about 6 months of PITIA, stepping up to about 9 months above $1,500,000. Lendmire brokers this path, and the hard money exit refinance page lays out the program.
What Does the Timeline Look Like From Close to Payoff?
One calendar runs the whole sequence, and the order matters more than any single step:
| Stage | What happens | What can go wrong |
|---|---|---|
| Close | Acquisition advance funded; holdback set aside | Budget too thin |
| Draws 1 to final | You front costs, request, inspect, get reimbursed | Failed or late inspection |
| Lease-up | A signed lease supports the rent figure | Vacancy extends carry |
| Seasoning | About 6 months of ownership for cash-out | Seasoning outlasts the note |
| Appraisal | New lender orders its own valuation | Value below ARV |
| Payoff | DSCR loan clears the hard money lien | Shortfall at the table |
The note has to outlast every row. Hard money terms here run 6-18 months. Rehab, lease-up, seasoning, appraisal, and underwriting all need to fit inside that window, with room to spare. Extension fees and extra interest pile up if it expires first.
Seasoning is the piece investors misjudge most. It generally runs from the recorded purchase date, not from the end of rehab or the signing of a lease. Seasoning also isn’t a federal rule for these loans. It is lender policy, and standards differ across the network. For contrast only, the agency rule for conventional cash-out is six months on title, as the Fannie Mae Selling Guide lays out. DSCR loans are not agency products, so don’t treat that rule as the DSCR rule. Check each lender’s own seasoning policy.
Where Does the Rule Break?
Several named edge cases change the plan.
Payoff-only versus cash-out. A payoff-only refinance clears the hard money lien and returns nothing. Lenders often treat it differently on seasoning than cash-out, but that varies by lender. If you only need to clear the bridge, it may be a cleaner exit than a cash-out.
Delayed financing. The agency exception for cash purchases generally does not rescue a hard money exit, because a hard money purchase is financed. It also returns cost, not ARV.
Overruns. The lender funds the agreed holdback only. A budget increase is usually your cash, and it raises the carry cost.
Unspent budget. Rehab money you never draw is never borrowed, so it never enters the payoff. A tighter scope can improve exit math.
Low appraisal. A valuation under your plan leaves a gap. Your options are to bring cash, extend the bridge and wait, or refinance only the payoff portion. A DSCR cash-out refinance can also help you recover rehab money on the way out of a hard money loan.
Ineligible property types. Manufactured homes (single- and double-wide), log homes, and barndominiums are not offered in the network’s DSCR programs. A hard money rehab on one of these has no DSCR exit here.
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.
What Happens When Draws Slip?
A late draw cascades. A failed inspection delays the contractor, which delays lease-up, which delays seasoning math and the appraisal, which pushes against the note’s maturity. Treat each delay as a decision:
| Problem | Response |
|---|---|
| Failed inspection | Fix the gap, request again; shorten future phases |
| Budget overrun | Fund from contingency, not interest reserve; re-check exit math |
| Maturity approaching | Ask the lender about extension terms early, or plan a payoff-only exit |
| Appraisal short | Bring cash, extend, or resize the refinance |
An investor who sees a delay a month out has options. One who finds it at maturity has fees.
What Is the Paper Trail Worth?
More than most investors expect. Invoices, receipts, inspection reports, and the final draw statement document your cost basis and prove the work was finished. Lien waivers show contractors were paid. Keep a rent roll or signed lease with deposit evidence. Some DSCR lenders look at title seasoning rather than tenant seasoning, while others want a tenant in place; having both documents ready removes friction either way.
Before the appraisal, the property should be rentable and the punch list done. Permits should be closed and the final holdback released. A half-finished property shows up in the valuation.
Who Should Not Use Draws?
Skip this route if you cannot cover the float and overruns from your own liquidity. A cash-funded rehab avoids draw delays entirely. A heavy rehab where selling beats holding may also make a refinance the wrong exit. If the numbers only work at a high ARV, test a sale as the plan instead.
For timing trouble, Lendmire’s piece Can You Refinance Hard Money Before the Rehab Is Finished? covers whether a mid-rehab exit is realistic. Short-term rental collateral follows different leverage and history rules, and 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 varies; consult a qualified professional before relying on any deduction.
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.
Frequently Asked Questions
Do I have to pay for rehab work before I get a draw?
Usually yes. Draws generally reimburse completed work, so you front the cost and are repaid after inspection. Plan float cash for the first phases.
Can a DSCR loan fund the rehab itself?
No. The DSCR loan is the long-term exit that pays off the hard money balance after the work is done. Rehab money comes from the hard money holdback and your own cash.
Does interest run on the whole rehab budget?
No. Interest accrues on money already disbursed. The payoff grows as draws are released, which is why slow work raises carry cost.
What if the appraisal comes in below my ARV?
The payoff may exceed what the DSCR loan can pay off at its 75% LTV cash-out ceiling. You can bring cash, extend the bridge if the note allows, or restructure the exit. Eligibility is subject to lender guidelines.
Can I refinance before the last draw?
Sometimes, but a lender wants a rentable, finished property and may want to see seasoning. The related piece How to Refinance Hard Money Before the Balloon Payment Hits covers the timing pressure.
About Lendmire
As a DSCR and non-QM mortgage broker, Lendmire — NMLS# 2371349 — connects investors with wholesale lending channels across 41 markets, including Washington, D.C. The property’s rental income, not the borrower’s tax returns, is central to lender review, which works for self-employed operators and portfolios beyond four financed properties. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
2. The Motley Fool: BRRRR Method
3. Fannie Mae Selling Guide B2-1.3-03
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Should You Close a DSCR Refinance After a Low Appraisal or Wait? · DSCR Refinance With a Medicaid-Planning Deed vs Unwinding It First · How to Convert a Fourplex to Condos and Refinance Each on DSCR
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.