The Quick Read: A hard money lender runs two tests on every flip. One is a percentage of your total project cost. The other is a cap based on the home’s after-repair value. The lender funds the lower number, releases rehab money in inspected draws, and charges interest-only payments until you sell or refinance.
- Two limits, lower one wins. The cost test and the value cap both apply, and the smaller loan controls.
- Experience moves the cost test. On most files, leverage steps up with documented completed projects, but the value cap stays put.
- Rehab money is held back. It is released in draws after the lender inspects completed work, so you front costs between draws.
- Interest follows the funded balance. On many programs, the payment starts smaller and rises as draws fund.
- No true 100% purchase program exists. You always bring cash, and the amount depends on which test binds.
Your estimate of loan size and cash needed gets sharper once you see the order lenders work in. This guide walks through it step by step. Program figures reflect select wholesale-network guidelines and vary by lender, property, and experience. 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.
Key Terms Defined
After-repair value (ARV): the estimated sale price once the renovation is done, based on comparable sales of renovated homes.
As-is value: what the property is worth today, before any work.
Loan-to-cost (LTC): the loan divided by purchase price plus rehab budget.
Loan-to-ARV (LTARV): the total loan divided by ARV.
Holdback: the slice of the loan reserved for rehab and paid out later, not at closing.
Draw: a release of holdback funds after the lender confirms a stage of work is complete.
Interest-only: a payment structure where each monthly payment covers interest and the principal balance stays the same until payoff.
Balloon: the full remaining principal that comes due at the end of the term, repaid by sale or refinance.
Interest reserve: money set aside, either from loan proceeds or your own deposit, to cover monthly interest payments during the project.
DSCR: debt service coverage ratio, which compares a rental’s income to its monthly housing obligation. It matters here only for the exit.
Why the Lender Sizes the Asset and the Plan
No federal rule tells a private lender how much to lend on a flip. Sizing is lender policy. That is why programs differ, and why a broker who sees many of them can compare.
The loan is a business-purpose investor loan. Underwriting does not run through traditional employment income or personal debt-to-income. The lender looks at the property, the renovation plan, the numbers connecting them, and your track record.
Your credit and liquidity still matter. The program parameters we work from show a 620 minimum score, with additional conditions below 660. Your strength changes the leverage tier and the terms. It does not turn the file into an income-qualified one.
The lender’s logic is simple. The property is the collateral, and the renovation is the plan that raises its value. If the plan fails, the lender needs enough room in the value to recover the loan. Both tests exist to protect that room.
Test One: The Cost Test
The cost test caps the loan at a percentage of your total project cost, meaning purchase price plus rehab budget. It answers one question: how much of your own money is in this deal?
Across the wholesale network, fix-and-flip leverage is tiered by documented completed projects. Typical figures on the program we place files with look like this:
| Experience | Loan as % of project cost | Value cap |
|---|---|---|
| Fewer than 2 completed projects | 85% | 75% of ARV |
| 2+ completed projects | 90% | 75% of ARV |
| 5+ completed projects | 93% | 75% of ARV |
These are typical ranges that vary by lender, property, and experience. Every one of the three is capped at 75% of ARV.
The top tier is reserved for experienced investors. First-time flippers can qualify at the lower tiers. They just bring more cash.
Other structures exist too. A bridge purchase without rehab typically reaches up to 80% of purchase price. A cash-out or rate-and-term refinance on a hard money loan runs up to 65% of value. Ground-up construction can reach 90% of cost and 75% of completed value at 3+ completed projects. Those figures apply to their own structures. Do not mix them into a flip calculation.
Rehab money has its own treatment. Up to 100% of the rehab budget can fund in draws against completed work. That is a statement about how rehab dollars are released. It is not a purchase leverage figure.
Test Two: The ARV Cap
The ARV cap limits the total loan to a percentage of the home’s after-repair value. It answers a different question: if this renovation goes sideways, can the lender still get repaid from a sale?
The Motley Fool’s ARV glossary notes that ARV is used in financing as well as in setting an offer price, and that rehab lenders cap the loan at a share of it. On the program above, that share is 75%.
The lender does not take your ARV on faith. It orders its own valuation, and on many files that means an appraisal. On some programs a broker price opinion or comparative market analysis can stand in. The lender wants two numbers: as-is value and ARV.
ARV comes from sold comparables of renovated homes near the property. Active listings and your contractor’s optimism do not count. When two valuation sources disagree, lenders usually use the more conservative figure.
This is where files get hurt. If you overstate ARV, the cap lands lower than you expected. The cost test still looks fine on paper, but the cap quietly shrinks the loan and your cash requirement grows.
Which Test Wins?
The lower of the two limits sets the loan. Which one binds depends on the gap between your all-in cost and ARV.
Set ARV at 100 and read every other number as a percent of ARV. Assume the 90% cost tier and the 75% cap:
| Total project cost | 90% of cost | ARV cap | Loan | Cash gap before fees |
|---|---|---|---|---|
| 70 | 63 | 75 | 63 (cost test binds) | 7 |
| About 83 | About 75 | 75 | About 75 (crossover) | About 8 |
| 90 | 81 | 75 | 75 (ARV cap binds) | 15 |
These rows are modeled assumptions, not market data. Notice what happens as the spread between cost and ARV narrows. The loan stops growing and your cash requirement jumps. A thin deal does not just earn less. It also needs more of your money at the start.
Here is the same project cost of 70 at each experience tier:
| Tier | Loan at cost of 70 | Cash gap before fees |
|---|---|---|
| 85% of cost | 59.5 | 10.5 |
| 90% of cost | 63 | 7 |
| 93% of cost | 65.1 | 4.9 |
In each case the cost test binds, because all three loans sit below the 75 cap. This is why documented completed projects directly lower your cash to close.
How the Loan Splits: Closing Funds and Holdback
The loan is not one lump sum. The lender funds the acquisition at closing and holds the rehab portion back. It releases that portion as the work gets done.
The draw process runs in a repeatable order:
1. You submit a draw request with contractor invoices or a progress description.
2. The lender sends an inspector, or reviews photos, to confirm the work is complete.
3. The lender releases funds for the completed stage, sometimes keeping a small amount back until the end.
4. You repeat for the next stage.
Notice who carries the float. Contractors often want a deposit before starting, and the reimbursement comes after inspection. Your cash has to cover that gap. The number of draws and the inspection method vary by lender, so ask before you sign.
Inflated line items cause trouble too. Lenders compare your scope of work to the work actually completed. A padded budget does not create more loan. It creates questions.
What Interest-Only Means on This Loan
Interest-only means your monthly payment covers interest and nothing else. The principal stays the same until payoff. On the hard money program we place files with, terms run 6 to 18 months, interest-only, with no prepayment penalty. Terms vary by lender and property.
| Feature | Interest-only flip loan | Amortizing loan |
|---|---|---|
| Monthly payment covers | Interest | Interest plus principal |
| Balance during the project | Stays flat | Slowly declines |
| End of term | Balloon payoff | Balance after payments |
| Typical exit | Sale or refinance | Long hold |
Interest-only keeps the carry lighter while the property is not producing income. The tradeoff is the balloon. The whole balance comes due, so you need a sale or refinance plan from day one.
Interest on the drawn balance versus the full commitment
How interest is calculated changes your total carry. Some lenders charge interest only on funds actually disbursed. That is often called non-Dutch interest. Others charge on the full commitment from day one, often called Dutch interest. Policies vary, and some lenders defer interest to payoff while others collect it monthly.
Here is the project from the end-to-end example below, over six months. The draw schedule is a modeled assumption:
| Month | Share of loan funded (drawn-balance method) | Share charged (full-commitment method) |
|---|---|---|
| 1 | 78% | 100% |
| 2 | 78% | 100% |
| 3 | 86% | 100% |
| 4 | 93% | 100% |
| 5 | 100% | 100% |
| 6 | 100% | 100% |
The drawn-balance method charges interest on about a tenth less balance over the six months. That adds up, and it is worth asking how a lender calculates interest before you compare two offers. It also means the payment rises as draws fund. Slow work on site lowers the early payments, but it also pushes your sale date out.
Interest Reserves
An interest reserve is money set aside to pay your monthly interest, so you are not writing checks during the project. Some programs let you fund it from loan proceeds, which counts toward the cost the loan is sized on. Others want a separate deposit from you.
Lenders size the reserve to the project timeline. A realistic six-month plan needs about six months of interest. If you choose a reserve, build in a cushion. A reserve that runs dry in month five puts the payment back on you.
Funding the reserve from proceeds can look attractive. It also shrinks the money available for acquisition and rehab inside the same cap. Treat it as a cost, not a free perk.
One Deal, Sized End to End
Run the numbers on a single flip, with ARV set at 100 and every figure expressed as a percent of ARV. Assume a purchase price of 58, a rehab budget of 14, and an investor with 2+ completed projects. These are modeled inputs.
1. Cost. Purchase plus rehab is 72.
2. Cost test. At 90% of project cost, the loan is about 65.
3. ARV test. 75% of ARV is 75.
4. Binding limit. 65 is lower than 75, so the cost test binds.
5. Holdback. The rehab budget of 14 sits in holdback. About 51 funds at closing.
6. Cash gap. 72 less 65 leaves about 7. Fees and closing costs come on top, as does your reserve or float.
7. Carry. Interest runs on the funded balance, starting near 78% of the loan and rising to 100% as draws fund.
In this deal the ARV cap gives you a cushion. The cap would only bite if ARV came in more than about 13% under your estimate. That cushion is what a healthy spread buys you.
Across the wholesale network Lendmire places hard money files with, the files that stumble are rarely the ones with a bad cost test. They are the ones where the ARV was optimistic and the renovation budget was thin. A lender who reads the comps conservatively and the budget skeptically sizes the loan accordingly. The borrower who ran the numbers the same way finds no surprises at the term sheet.
Where the General Rule Breaks
The two-limit test covers most files. These edge cases bend it.
“100% financing” is not 100% of value. It generally means a high percentage of cost, inside the ARV cap. The program we place files with has no true 100% purchase structure. Lenders want you to have money in the deal, even when the math might technically allow more.
Closing costs can sometimes be rolled in. Some lenders allow it within the cap. Others do not. When they do, the cap still binds, so rolled-in costs can reduce the money available for other uses.
As-is value versus purchase price. If you buy well below as-is value, a lender sizing on a percentage of as-is value can offer higher leverage than a lender using price. The reverse can apply when you overpay.
Down payment versus cross-collateral. Some lenders accept a second property as additional collateral instead of cash down. It is less common and varies by lender.
Collateral type. The program covers non-owner-occupied residential property of 1-4 units, with ground-up construction up to 10 units. Commercial, industrial, land, hospitality, and owner-occupied property are not offered.
Loan size. Loan amounts run up to $5,000,000, larger by exception. Smaller balances vary by lender.
The refinance exit. This one trips up investors who plan to hold. A loan sized at the ARV cap can only be paid off by a refinance if the new appraisal hits ARV almost exactly. A DSCR cash-out refinance typically tops out around 75% LTV across most of the network on standard rentals. A thin-margin flip can leave you bringing cash to the payoff.
Clearing the coverage test is also not the same as positive cash flow. DSCR compares rent to principal, interest, taxes, insurance, and any association dues, which together make up PITIA. It leaves out repairs, vacancy, management, utilities, and capital expenses. Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized, and Lendmire brokers that path. For program basics, see the complete DSCR loans guide.
The 70% Rule Is Not the Lender’s Rule
Investors often confuse their own purchase screen with the lender’s sizing. The 70% rule says your maximum offer equals ARV times 70% minus repairs. Bob Vila’s explanation of the 70% rule frames it as a purchase formula for investors.
Lenders do not use it to size loans. They run the cost test and the ARV cap described above. The rule just helps you avoid deals where those tests squeeze you.
People also treat the remaining 30% as profit. Flipper Force’s breakdown of the 70% rule points out it has to cover closing, holding, selling, and financing costs before any profit appears.
Stress Test: What Moves the Loan and the Carry
Take the end-to-end deal and bend it three ways.
| Scenario | Loan | Cash gap before fees |
|---|---|---|
| Base case (ARV 100) | About 65 | About 7 |
| ARV appraises at 86 | About 65 (cap just starts to bind) | About 7 |
| ARV appraises at 80 | 60 (cap binds) | 12 |
If ARV lands at 80, the value cap overrides the cost test. The loan shrinks, and your cash requirement nearly doubles.
A rehab overrun works differently. If the extra work is not added to the approved budget, the loan generally stays the same and the extra cost lands on your cash. Plan a contingency in the budget you submit.
A long hold hurts through carry. Three extra months at a fully drawn balance add more than half again the interest shown in the six-month table. With terms of 6 to 18 months, you have room, but every extra month costs.
What You Still Fund in Cash
Cash to close is the gap between the loan and total cost, plus fees and closing costs. Several other items sit on top of that gap.
- The cost gap itself, which depends on your tier and which test binds.
- Lender fees and closing costs.
- Any interest reserve you fund yourself.
- Contractor deposits and the float between draws.
- Cash reserves the lender may want to see.
Flipping is cash-intensive, even at the top tier. A realistic plan funds all of the above before the first draw arrives.
Self-Check Before You Apply
Walk through this list before you call a lender.
- Do you have the purchase contract and an itemized scope of work with real contractor numbers?
- Do you have comps of sold, renovated homes that support your ARV?
- Do you know your documented completed-project count, and which tier it puts you in?
- Have you computed 75% of ARV and your cost-based loan at your tier, and which is lower?
- Have you budgeted fees, reserve, and draw float on top of the cash gap?
- Is your exit written down, with a backup if the sale takes longer?
- Is your credit score in the range the program wants?
If you can answer these, you can predict your term sheet within a reasonable range. Final terms depend on the lender, the appraisal, and underwriting.
Frequently Asked Questions
Is the payment always interest-only on a fix and flip loan?
On the hard money program we place files with, yes. Terms run 6 to 18 months, interest-only, with no prepayment penalty. Lenders vary. The principal comes due at the end as a balloon, repaid by sale or refinance.
Do I pay interest on money that has not been drawn yet?
It depends on the lender. Some charge only on the funded balance, so the payment rises as draws fund. Others charge on the full commitment from day one. Ask which method applies before comparing offers, because it changes total carry.
Which number controls my loan, cost or ARV?
The lower one. The cost test is a percentage of purchase plus rehab, tiered by experience. The ARV cap is 75% on the program above. When your spread between cost and ARV is thin, the cap usually binds. When the spread is wide, the cost test does.
Can I get 100% financing on a flip?
Not on a purchase. Leverage runs 85%, 90%, or 93% of project cost depending on completed projects.
What if the ARV comes in lower than I expected?
The value cap shrinks the loan, and your cash requirement rises. Lenders often take the more conservative number when valuations disagree. Build a cushion into your ARV, and run the loan at a lower ARV before you commit to the purchase.
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.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349) arranging DSCR investor loans in 41 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR loans are evaluated by the lender on rental income rather than personal income, subject to lender guidelines — a fit for LLC-owned portfolios, self-employed investors, and operators scaling beyond conventional loan caps. Recognized as a Scotsman Guide Top Mortgage Workplace in 2025 and 2026.
Short-term financing tends to work best when the long-term plan is decided early – 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. The Motley Fool: ARV Formula
2. Bob Vila: The 70% Rule in House Flipping
3. Flipper Force: 70% Rule Formula
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 Loan Limits for a First-Time Investor · How to Get a Hard Money Loan for a First Flip With No Track Record · Does a Hard Money Lender Cap Loan to Cost on a Flip?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.