The Quick Read: Non-recourse on a flip loan usually means the lender’s remedy is limited to the property, and that protection holds only while you keep the promises in a signed guaranty. The paperwork comes in three phases: what you submit, what you sign, and what you file during draws.
- Non-recourse is conditional. A carve-out guaranty can bring personal liability back if you trigger it.
- Hard money underwriting is asset-based, but that does not mean paperless. Scope of work, budget, entity papers, and proof of funds carry the file.
- Your signed note, security instrument, and guaranty each create a different kind of exposure.
- Rehab money is held back and released in inspected draws, so draw paperwork decides your cash flow mid-project.
- On small residential flips, a personal guaranty is the norm. Fuller non-recourse terms tend to follow scale and track record.
What Non-Recourse Means on a Flip Loan (and What It Doesn’t)
Non-recourse means that if the deal fails, the lender looks to the property for repayment and not to your other assets. That is the clean definition. The real-world version has strings attached.
What this loan actually costs to carry.
Hard money is sized against the project and priced by time. Enter the deal and see how much the program will lend, the cash required at closing, the carry while you hold it, and what is left at the exit.
Leverage tiers on the current program: 85% with fewer than 2, 90% with 2 or more, 93% with 5 or more completed projects — every tier capped at 75% of after-repair value. Loan amounts up to $5,000,000, larger by exception; terms of 6 to 18 months, interest-only, no prepayment penalty. The rehab portion funds in draws against completed work, not at closing.
Program parameters shown update from Lendmire’s centralized guideline source. Rate, points, and months are editable assumptions, not quoted terms.
Cost cap sets the loan · positive spread
Illustrative estimate only — not a quote, Loan Estimate, approval, or commitment to lend. Rate, points, and months are editable assumptions. Hard money is business-purpose financing for real estate investors, not a consumer mortgage. Leverage on the current program tops out at 93% of project cost for investors with a documented track record, capped at 75% of after-repair value, with rehab funding up to 100% of the documented budget released in draws; actual terms vary by lender, borrower experience, property, and exit. Lendmire is a mortgage broker, not a lender.
Lenders usually have the borrower or its principals sign a carve-out guaranty, a separate document that says what you promise not to do. Those promises generally fall into four buckets: insolvency, fraud or misconduct, additional debts or liens, and transfers. The triggers are actions within the guarantor’s personal control.
Carve-outs started narrow. Adventures in CRE notes they began as true bad acts such as theft or a voluntary bankruptcy filing. Over time the lists grew to include things like failing to pay real estate taxes or refusing a property inspection.
Here is the plain reality on small deals. Across the lenders we place files with, a personal guaranty is the norm on small residential flips. Limited-recourse terms, meaning non-recourse except for specified misconduct, tend to show up with bigger loans, longer track records, or commercial and multifamily collateral. Whether any given lender offers them varies by lender, property, and experience. This article covers the paper.
Key Terms Defined
Recourse: The lender’s right to collect a shortfall from you personally, beyond the property itself.
Carve-out guaranty: A signed promise that you will avoid listed acts, with personal liability if you break it. Many people call it a bad boy guaranty.
Springing recourse: A trigger that flips the whole loan from non-recourse to full recourse.
Promissory note: The written promise to repay the loan.
Deed of trust or mortgage: The recorded document that puts a lien on the property. It secures the debt but does not itself create the promise to repay.
Draw: A release of held-back rehab funds after completed work is documented and inspected.
After-repair value (ARV): The estimated value of the property once the renovation is done.
The Document Map
Every flip file has the same core paper. This table shows who supplies each piece, when it appears, and what it does.
| Document | Who supplies it | Phase | What it does |
|---|---|---|---|
| Entity papers | You | Application | Proves the borrower exists |
| Scope and budget | You and contractor | Application | Defines the rehab and draw schedule |
| Proof of funds | You | Application | Shows cash for equity and reserves |
| Promissory note | Lender | Closing | Creates the repayment promise |
| Deed of trust or mortgage | Lender | Closing | Creates the recorded lien |
| Carve-out guaranty | Lender | Closing | Defines your personal exposure |
| Draw packet | You | Draw | Unlocks held-back rehab funds |
Borrower and Entity Documents
Hard money lenders commonly lend to an LLC or another entity. Lending to an LLC is subject to lender program eligibility, and many lenders still ask the owners to sign a guaranty.
A typical entity package includes the formation documents, the operating agreement, the EIN letter, a good standing certificate, and a list of members. Each borrower and guarantor also supplies identification and a credit authorization. Across most hard money programs, the minimum credit score sits around the low 600s, with extra conditions at the bottom of the range. Underwriting still stays focused on the property, the plan, and the exit.
A brand-new entity is not a problem by itself. Expect the lender to lean harder on the guarantor’s experience and liquidity, since the entity has no history of its own.
Hard money loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. That is why the file should read like a business deal from the first page: an entity, a purchase contract, a budget, and a plan to sell or refinance.
Guarantor Documents and the Guaranty Itself
A borrower and a guarantor are different roles. The borrower owes the debt. The guarantor promises to stand behind it, fully or only for listed acts.
The guarantor typically supplies identification, a credit authorization, a personal financial statement or liquidity proof, and a real estate experience summary. Some lenders also want the guarantor to be a member of the borrowing entity with a minimum ownership share.
Experience matters because it drives leverage, not only approval. On the hard money programs we place, fix-and-flip leverage typically runs 85% of project cost with fewer than two completed projects, 90% of project cost at two or more, and 93% of project cost at five or more. Every tier is capped at 75% of after-repair value. Those figures vary by lender, property, and experience. First-time investors generally qualify at the lower tiers.
Deal Documents: Scope, Budget, Valuation, Insurance, Exit
The deal file is where flips are won or lost. A lender wants to see that the numbers and the plan hold together.
- Purchase contract or payoff information. A purchase uses the contract. An already-owned property uses title and payoff details.
- Line-item scope of work. Vague scopes make for messy draws. Specific scopes make inspections easy to pass.
- Renovation budget and contractor bids. The budget becomes the draw schedule, so every line should tie to a phase of work.
- Timeline. Terms on these loans typically run 6 to 18 months, interest-only, with no prepayment penalty on the programs we place.
- Valuation inputs. Comparable sales and an appraisal support both the as-is value and the after-repair value.
- Insurance. Expect builder’s risk and liability coverage with the lender named on the policy.
- Exit plan. Either a sale or a refinance. Write it down.
Proof of Funds
Proof of funds covers your equity in the deal and any reserves. Bank or brokerage statements are the usual form, and the account holder should match the borrower or guarantor.
Lenders often look at funds again before closing. Moving money between accounts without a paper trail is the classic way to create a delay. Keep large transfers documented and avoid new debt while the file is open.
Draws also reach into your pocket. Draws are generally reimbursements, so you often front the cost of each phase until the work passes inspection. Up to 100% of the rehab budget can be funded in draws against completed work, though that is a rehab-budget figure and not a purchase leverage number. Plan cash for the gap between paying the contractor and getting reimbursed.
Closing Documents: What Each One Creates
Three signed documents do most of the legal work, and each creates something different.
The note is the promise to repay. The non-recourse language usually lives here or in the loan agreement. The deed of trust or mortgage gives the lender a lien on the property and gets recorded. The guaranty then claws back personal liability for the listed acts. Read the recourse clause and the guaranty together, because the first says what is limited and the second says when the limit disappears.
You will also sign borrower certifications confirming the loan is for business purposes. Take them seriously. The business-purpose exemption in federal consumer lending rules turns on the loan’s purpose, not the entity label. The CFPB’s Regulation Z, section 1026.3 lists the exempt transactions. America’s Credit Unions adds that a consumer-purpose loan to a trust can still fall within the rule. If you might live in the property, say so early and talk to counsel before you sign.
Carve-Outs: Loss-Based vs. Springing Recourse
The most useful distinction in any guaranty is how big the penalty is. Murphy PC separates two structures. Its commentary focuses on commercial and securitized loans, so apply it to flips by analogy.
| Feature | Loss-based carve-out | Springing recourse |
|---|---|---|
| Also called | Above the line | Below the line |
| Your exposure | Lender’s actual damages | The entire loan |
| Typical triggers | Misapplied funds, waste | Bankruptcy, unauthorized transfer |
| Risk level | Contained | Severe |
Murphy PC adds that modern guaranties often include late taxes, lapsed insurance, late reports, debt above a set threshold, and unauthorized transfers or liens. Notice that the debt trigger can sweep in a disputed contractor lien. On a flip, where subcontractors file liens often enough, that matters.
Worked Example
Picture an investor with two completed flips who borrows through an LLC and signs a guaranty. Midway through the rehab, a subcontractor files a lien over a payment dispute. At the same time, the insurance renewal slips and the policy lapses for a stretch.
What happens depends entirely on the wording. If the guaranty is loss-based, the investor owes the lender’s actual damages from those events, which may be small if the lien is cleared and the property is undamaged. If the guaranty springs full recourse on prohibited liens or lapsed insurance, those two lapses could make the whole loan personal. Same project. Very different outcome.
The lesson: your loan can look identical on the term sheet and still carry very different exposure on page eight of the guaranty.
Draw Documents
Draws are the paperwork phase most people underestimate. A typical packet includes a draw request, invoices, proof of payment, permits, lien waivers, photos, and an inspection report.
Liens, permit problems, and incomplete paperwork cause most of the stalls we see. Keep lien waivers current, match every invoice to a budget line, and keep permits open and visible. A clean draw packet protects your cash flow and also keeps you out of the carve-out triggers above.
Where the General Rule Breaks
An LLC does not replace non-recourse. The entity shields you from property-level claims, such as a tenant or contractor suing. It does not shield you from a guaranty you signed personally.
An individual borrower with an LLC guarantor. The business-purpose exemption depends on the loan’s primary purpose. An individual borrowing for business is not covered simply because an LLC guarantees the loan.
Large or experienced borrowers. Fuller non-recourse terms become more plausible with scale and a long track record in the same property type and price range.
Springing recourse through liens. A disputed mechanic’s lien can trip a debt-based trigger even when you are in the right.
State law. Deficiency judgments and foreclosure procedures vary by state, and no single national rule governs them. Ask a real estate attorney in the property’s state what a shortfall would mean for you.
Property eligibility. Hard money collateral is typically non-owner-occupied residential property of one to four units. Ground-up construction runs to ten units.
Before You Sign: A Guaranty Checklist
Ask these questions about your own guaranty.
1. Is liability limited to the lender’s actual loss, or does any trigger spring full recourse?
2. Which triggers need intent, and which apply even by accident?
3. Is there a cure period for late taxes, lapsed insurance, or a filed lien?
4. Is there a debt threshold, and does it include disputed liens?
5. Who signs, and does each guarantor carry the same exposure?
6. Do the entity’s operating agreement and conduct match the loan covenants?
7. What does the draw process require, and what happens if paperwork is late?
What the Decision Looks Like in Practice
Decide on the whole stack: leverage, term, and guaranty. A lender offering the highest leverage may also write the broadest carve-outs. A lender with a lower tier may sign a gentler guaranty.
Loan amounts on the hard money programs we place run up to $5,000,000, with larger loans by exception. Smaller balances vary by lender. Nothing here is a commitment to lend.
Many investors plan to refinance out of hard money into long-term rental financing once the property is stabilized. Lendmire brokers that path, and the complete DSCR loans guide explains how rental coverage works. Your guaranty obligations should end at payoff, so confirm that in the documents.
Frequently Asked Questions
Does non-recourse mean I have no personal liability?
No. It limits what the lender can collect after a foreclosure shortfall. A carve-out guaranty can still make you personally liable for listed acts, and a springing trigger can make the entire loan personal.
Are personal guaranties still required on flip loans?
On small residential flips, usually yes. Limited-recourse terms tend to appear with larger loans and long track records. It varies by lender, property, and experience.
Do I need traditional personal-income documentation?
Hard money underwriting is asset-based, so the focus falls on the property, the plan, and the exit. Some lenders ask for little income paperwork. The file still carries heavy documentation: entity papers, scope, budget, and proof of funds.
What if my LLC is new?
A new entity can work, subject to lender program eligibility. The lender will rely more on the guarantor’s credit, liquidity, and experience.
What triggers full recourse?
It depends on the guaranty. Common springing triggers include bankruptcy, unauthorized transfers or liens, and prohibited debt. Some guaranties extend them to late taxes or lapsed insurance.
Next Step
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. Lendmire is a broker arranging financing through select lenders in its wholesale network, spanning 41 markets, including Washington, D.C.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage built around DSCR investor lending, with programs available in 41 markets, including Washington, D.C. DSCR lenders commonly evaluate rental-income coverage instead of personal income paperwork — a practical fit for LLC-owned and multi-property investors. Terms vary by lender, property, leverage, and program. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
The exit plan matters as much as the purchase price on short-term financing – see the hard money loan overview.
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References
1. Financial Poise: Carve-Out Guaranties
2. Adventures in CRE: Non-Recourse Carve-Outs
3. CFPB: Regulation Z, Section 1026.3
4. America’s Credit Unions: Regulations on Business Loans
5. Murphy PC: Your Non-Recourse Loan Isn’t Non-Recourse
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can a Business Owner Qualify for a Larger Hard Money Flip Loan? · Is a Hard Money Fix and Flip Loan Worth It for a Business Owner? · Can You Buy a Flip in an LLC With a Hard Money Loan?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.