The Quick Read: A hard money lender sizes a flip loan by running separate tests and funding the lowest result. One test looks at project cost. The other caps the loan against after-repair value. Non-recourse does not change that math, but it changes who pays if the deal fails, and most such loans keep carve-outs that can bring personal liability back.
- The loan is the lesser of a cost-based test and an after-repair value (ARV) cap.
- On the Lendmire network’s program, fix-and-flip loans run up to 93% of project cost at 5+ completed projects, 90% at 2+, and 85% below that, each capped at 75% of ARV.
- Up to 100% of the rehab budget funds in draws against completed work.
- Borrower cash is the gap between total cost and the loan, plus fees and reserves.
- Non-recourse usually means limited recourse with bad-act triggers. Read the carve-out list.
Everything below is how that works inside a real file. Leverage and terms vary by lender, property, and experience, and nothing here is a commitment to lend.
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.
What Is the Lender Actually Underwriting?
The lender reviews the property’s rental income, the plan, and the exit. It does not underwrite your paycheck. Business-purpose investor loans on non-owner-occupied property are reviewed differently from a standard owner-occupied mortgage. The file is built around three questions. What is the property worth today? What will it be worth finished? How does the borrower get repaid?
Credit and experience still matter. They set eligibility, the leverage tier, and reserves. On the network’s program, a 620 score is the minimum, with added conditions below 660. First-time investors qualify at the lower leverage tiers. The top tier is reserved for experienced investors.
Key Terms Defined
- ARV: the after-repair value, based on comparable sales of renovated homes.
- Loan-to-cost (LTC): the loan divided by total project cost, meaning purchase plus rehab.
- Loan-to-ARV (LTARV): the total loan divided by ARV.
- Holdback: rehab money the lender keeps in escrow or fund control and releases in draws.
- Recourse: the lender’s right to pursue the borrower personally beyond the collateral.
- Non-recourse: a loan where the lender looks mainly to the property, usually with exceptions.
- Carve-out guaranty: a guaranty that triggers personal liability only for named bad acts.
The Two Sizing Tests
The lender computes each test and funds the lowest one. Test A is a percentage of purchase price plus the funded share of the rehab. Test B is a percentage of ARV. Some programs also look at as-is value.
The network’s fix-and-flip tiers show how this works. Leverage on cost runs 93% of project cost at 5+ completed projects, 90% at 2+, and 85% with fewer than 2. Every tier is capped at 75% of ARV. Up to 100% of the rehab budget funds in draws. That last figure is a rehab-budget number, not a purchase LTV. Bridge purchases without rehab run up to 80% of purchase price. Loans go up to $5,000,000, with larger balances by exception.
Be careful with the phrase 100% financing. There is no true 100% purchase program. A ceiling on the rehab budget is not a promise that you bring nothing to the table.
Worked Example One: The Cost Test Binds
Say a purchase and rehab are priced so that cost is well below the ARV cap. This is a modeled scenario, not market data. The investor has 2+ completed projects, so the 90% of project cost tier applies. Ninety percent of cost lands under 75% of ARV, so the cost test sets the loan.
The borrower’s cash is the other 10% of cost. Add points, closing costs, and reserves on top. Those are real cash needs even though they sit outside the loan.
Worked Example Two: The ARV Test Binds
Now take the same investor and a thinner deal. Purchase plus rehab sits close to ARV. Ninety percent of cost now exceeds 75% of ARV. The ARV cap overrides the cost test and the loan shrinks to the cap.
The gap between the capped loan and total cost lands on the borrower. Same purchase price, same scope, more cash needed. That is how a file that looked like 90% leverage on a term sheet ends up funding much less. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Low appraisals work the same way. If the lender’s ARV comes in under yours, the cap falls with it. Nothing about the purchase or rehab changed.
| Scenario | Binding test | Borrower cash effect |
|---|---|---|
| Healthy spread between cost and ARV | Cost test | Gap equals the tier’s equity share |
| Thin spread | ARV cap | Gap grows beyond the tier’s equity share |
| ARV appraises low | ARV cap, lowered | Gap grows again |
What Counts in the Cost Basis
The cost basis is purchase price plus the rehab budget. Points, closing costs, interest carry, and contingency are not automatically financed. Treat them as borrower cash unless the lender’s term sheet says otherwise. Reserves are a separate item. Underwriting can ask for liquidity after closing.
This is where first-time flippers get surprised. They size the loan from the headline tier and forget the fees, then come up short at the table. Build a full sources-and-uses sheet before bidding. Model both tests, not one.
How ARV Gets Set (and the Appraisal Gap)
The lender sets an as-is value and an ARV, usually from sales of renovated comparable homes. Comp rules on distance, recency, and size vary by lender. Your own ARV is an estimate. The lender’s number controls.
The practical fix is to stress-test your figure before submitting. Use closed sales, not listings. Use conservative comps. Then ask what happens to the loan if ARV lands lower. If the deal only works at your highest ARV, the ARV cap will find the problem for you.
Purchase Advance Versus Rehab Holdback
At closing, the initial advance funds the purchase. The rehab portion sits in escrow or fund control. The borrower submits a line-item budget, bids, and a timeline. The lender builds draw milestones around them. The lender inspects completed work and releases money in draws.
Mid-project budget changes are a friction point. A scope that grows needs lender sign-off, and extra cost usually falls to the borrower. Keep bids current and documented. Stale contractor numbers slow a draw request.
What Non-Recourse Really Means on a Flip
Treat the label as limited recourse. Most non-recourse loans are conditionally non-recourse, and Kelley Clarke law explains that technical violations can spring full-balance personal liability. Selzer Gurvitch describes carve-outs as recourse for specific bad boy acts, used by lenders to control behavior.
The common triggers are fraud, misapplied rents or insurance proceeds, unpaid property taxes, unauthorized transfers, and unauthorized bankruptcy filings. Mapped to a flip, that means misstating the budget, diverting rehab funds, deeding the property to another entity without consent, or letting taxes lapse.
Market loss is not on that list. A resale that comes in under the loan balance is a business loss. A diverted draw is conduct. Read the carve-out language before signing, and ask what cure rights exist.
Lending to an LLC does not remove a guaranty, subject to program terms.
How Non-Recourse Changes the Sizing
When a lender can look only to the property, the collateral carries the whole risk. That tends to show up as tighter leverage, a firmer ARV cap, more borrower cash, or a stronger experience requirement. Treat that as a pattern across lenders, not a fixed rule. Structures vary, and many flip loans to individuals carry a personal guaranty instead.
The trade is simple. More recourse protection for the borrower often means less leverage or more cash in. More leverage often means a guaranty. Decide which you value on this deal.
Where the Downside Lands
| Scenario | Who bears the loss in limited recourse |
|---|---|
| Stalled rehab, no misconduct | Collateral first; lender holds remaining draws |
| Cost overrun | Borrower funds the extra |
| Resale below loan balance | Lender, unless a carve-out was triggered |
| Diverted draw funds | Borrower, personally, through the carve-out |
The borrower’s exposure rises with conduct, not with market movement. That is the whole logic of a carve-out guaranty.
Business Purpose Has an Edge
Credit to acquire, improve, or maintain non-owner-occupied rental property is generally treated as business purpose under CFPB Regulation Z. The exception is a borrower who expects to occupy the property more than 14 days in the coming year. A flip you plan to live in does not fit. Business purpose also does not mean no rules. Some states require licensing for residential-secured lending regardless of purpose. The network is available in 41 markets, including Washington, D.C., but not in LA, MN, ND, SD, or in Baltimore, Chicago, or Detroit.
What to Have in the File
- Purchase contract and address
- Line-item rehab budget, bids, and timeline
- Your ARV estimate with closed renovated comps
- Track record of completed projects, since it sets the tier
- Entity documents, with the guarantor identified
- Proof of liquidity for cash to close and reserves
- Exit plan: sale or refinance
Missing items stall sizing more than a tight deal does.
Why Files Get Sized Down
Four causes show up again and again. ARV comes in low. The budget looks light against the scope. Experience falls into a lower tier than the borrower assumed. Cash to close was never modeled against the fees. Fix them before submission, not after the term sheet.
Planning the Exit
The loan is interest-only and short, 6-18 months, with no prepayment penalty. There are no multi-year options on the current program. Many investors keep the property and refinance out of hard money into long-term DSCR financing once it stabilizes. Lendmire brokers that path, and the refinance is sized on rent and value, not on the flip loan’s ARV math. Rent coverage and credit tiers differ by program, so see the complete DSCR loans guide for how that stage works.
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
Does non-recourse mean I can never be pursued personally?
No. Most non-recourse loans are conditional. Carve-outs for fraud, misapplied funds, unpaid taxes, or unauthorized transfers can create personal liability, and in some cases full-balance liability.
Is the loan really sized to a percentage of ARV?
The ARV percentage is a cap, not the only test. On the network’s program every tier is capped at 75% of ARV, but the cost-based test often binds first on healthy deals. The lowest result wins.
Can I bring zero cash to a flip?
Not realistically. Even at the top tier of 93% of project cost, the borrower funds the rest, plus points, closing costs, and reserves. There is no true 100% purchase program.
Does buying through an LLC remove the guaranty?
Not by itself. An entity borrower is common, but the guarantor is still named in the documents, subject to program terms. Read the guaranty and carve-out list.
What if my ARV and the lender’s ARV disagree?
The lender’s number controls the cap. A lower ARV shrinks the maximum loan and raises your cash need. Pressure-test your figure with conservative closed comps before bidding.
About Lendmire
A non-QM mortgage broker (NMLS# 2371349), Lendmire arranges DSCR financing for real estate investors in 41 markets — 40 states plus Washington, D.C. Because deals are underwritten primarily on property cash flow rather than personal income documentation, the structure suits self-employed buyers and entity-owned portfolios. Lendmire places loans through wholesale investor lenders; it is not a direct lender. 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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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Kelley Clarke law, bad boy carve-outs
2. Selzer Gurvitch, bad boy guaranties
3. CFPB Regulation Z, Section 1026.3
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Hard Money Fix and Flip Minimum Loan Amount Requirements · Is a Hard Money Fix-and-Flip Loan Worth It on a Single-Family Home? · Can You Borrow Enough on a Hard Money Loan to Flip a Condo?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.