The Quick Read: Your scope of work becomes the rehab budget, and the rehab budget becomes the holdback. The lender then runs two tests, one against total project cost and one against after-repair value, and lends the lower of the two results. The scope is the input. The tests set the ceiling.
- The lender values the property itself, so its after-repair value (ARV) overrides yours.
- Fix-and-flip leverage is typically sized as a share of project cost, and every tier is capped at 75% of ARV.
- The rehab portion is held back and paid out in draws as work is completed.
- A vague or inflated scope shrinks the loan or stalls the file.
- You need cash beyond the down payment, because draws reimburse finished work.
All program figures here describe typical ranges from select lenders in Lendmire’s wholesale network. They 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 Reading in Your Scope?
The lender reads your scope as evidence that the plan is real, priced, and big enough, but not too big, to reach the ARV. It is not reading it as a wish list. A hard money loan is asset-based, so the property, the plan, and the exit matter more than your pay stubs.
Here is what that looks like across the wholesale network. Most lenders hand you their own scope template. It is an itemized worksheet broken out by area of the house and by trade, with a dollar amount and a short description on each line. A line that reads “Interior: lots of work” gives an inspector nothing to verify later. A line that reads “Kitchen: cabinets, counters, plumbing fixtures, labor” does.
Light cosmetic jobs can often pass with a simpler breakdown, especially for a borrower with a record. Heavier rehabs and larger loans draw more scrutiny. Lenders that run formal draw processes want contractor-level detail on all of it.
Three questions sit behind every scope review:
1. Are the prices believable for the trades and the market?
2. Does the work match what the ARV needs?
3. Can an inspector later confirm each line was finished?
Lenders also decline some deals outright. A property can be too far gone, or the budget can be too thin to reach the stated ARV. That is a decision about the plan, not about you.
Step 1: Your Scope Becomes an Underwriting Budget
Your scope turns into a budget the lender can test line by line, and contractor bids are what make it credible. Most lenders ask for the bids and the scope together. A rough number you built yourself is weaker than a bid with a contractor’s name on it.
The underwriter may adjust the budget. A line priced far below normal can be raised. A missing trade, such as permits, demolition, or cleanup, can be added. A line that looks like pure cost with no link to value can be questioned.
Contingency belongs in this step. Some lenders fund a contingency line and some do not, and that varies by lender. The practical habit is to put one in the submitted budget anyway. Overstating contingency is safer than understating it, because the budget you submit is the one your draws are measured against.
Step 2: The Lender Sets the ARV, Not You
The lender orders a broker price opinion or an appraisal, and that number governs. Your ARV is a projection. The lender’s number is the one that goes into the formulas.
The appraiser looks at the property as-is and at what it should be worth after the planned work. That is where the scope earns its second job. Renovated comparable sales are tested against what you plan to build. Granite counters in a neighborhood where buyers expect laminate will not necessarily raise the appraised value. An improvement may support a higher appraised value, depending on comps and underwriter review. It never adds a guaranteed amount.
If your ARV estimate runs high, the lender’s cap binds sooner than you expected. Your profit shrinks as well.
Step 3: The Two Tests, and the Lower Number Wins
Every flip loan faces two limits at once: a cost-based limit and an ARV-based limit. The loan lands at whichever is lower.
On the network’s fix-and-flip programs, leverage is tiered by how many projects you have completed. The tiers typically run like this:
- Fewer than 2 completed projects: about 85% of project cost.
- 2 or more completed projects: about 90% of project cost.
- 5 or more completed projects: about 93% of project cost.
- Every tier: capped at 75% of ARV.
The top tier is reserved for experienced investors. First-time investors typically qualify at the lower tiers, subject to lender guidelines. Credit matters too. A 620 score is the usual minimum, with added conditions below 660.
Project cost means purchase price plus rehab budget. Here is how the two tests play out in four modeled scenarios, with figures expressed as a share of ARV. These are assumptions for illustration, not market data.
| Scenario | Project cost | Loan lands at | Cash you bring |
|---|---|---|---|
| Under 2 projects, light rehab | 70% of ARV | 59.5% of ARV | 10.5% of ARV |
| 2+ projects, same deal | 70% of ARV | 63% of ARV | 7% of ARV |
| 5+ projects, same deal | 70% of ARV | 65.1% of ARV | 4.9% of ARV |
| Any tier, heavy rehab | High enough to pass the cap | 75% of ARV (cap) | Everything above the cap |
Look at the last row. On a heavy rehab, total project cost climbs until the cost-based result would run past 75% of ARV. Even at the 5+ tier, 93% of that cost would overshoot. The cap cuts the loan off, so the ARV test binds. You fund the gap.
The cash column covers only the gap between project cost and the loan. Closing costs, interest carry, and any draw fees are extra. Interest and fees vary by lender, so budget for them separately.
Where the 70% Rule Fits (and Where It Does Not)
The 70% rule is a screening tool for your offer. It is not a lender’s sizing formula. The rule says your maximum offer is ARV times 70%, minus repairs, as HomeLight explains. The other 30% covers renovation overruns, financing, holding costs, closing, and selling costs. It is not all profit.
FlipperForce breaks that buffer down further. Roughly half is profit and half is fixed costs. That means a deal that hits the rule exactly leaves a thinner profit than many new investors assume.
The two ideas are easy to confuse. The 70% rule tells you what to offer. The lender’s ARV cap tells you what you can borrow against the finished value. A deal can pass the first and still run into the second.
Step 4: Purchase Advance, Holdback, and Draws
Once the total loan is set, the lender splits it into two pieces: money for the purchase and money held for the rehab. The purchase piece funds at the start. The rehab piece sits with the lender and is released as work is done.
On the network’s flip programs, up to 100% of the rehab budget can fund through draws against completed work. That is a figure for the rehab budget only. It is not a purchase leverage number, and the total loan still has to fit under both tests above. How the lender divides the total between purchase and holdback varies by lender and file.
Your scope also becomes the draw schedule. A well-built scope breaks into stages, such as demolition, rough-in, drywall, finishes, and final. At each stage the lender sends an inspector. The inspector confirms the work and the lender releases that portion.
Two practical points catch new borrowers:
- Draws reimburse. Lenders pay for work that is finished. Contractors often want money up front for materials and early labor, so you carry that gap with your own cash.
- Fees can apply per draw. Some lenders charge a fee on each draw request, so a scope split into many small stages can cost more in fees.
Once the loan is in place, the carrying cost matters too. Lendmire’s piece How a Hard Money Lender Sizes an Interest-Only Fix and Flip Loan covers how the interest-only structure shapes your holding period.
Where the General Rule Breaks
The sizing logic above is the rule. These are the places it bends.
Cost basis versus value basis. Some lenders lean harder on cost and others on ARV. Across the wholesale network, you see both. A lender that sizes mostly off ARV can leave you a smaller loan on a cheap purchase with a big rehab. A lender that sizes mostly off cost can leave you a larger one.
Bigger budgets need more cash. If a lender requires you to fund a share of total project cost, a bigger budget means more of your money goes in. That tempts borrowers to keep budgets lean. A lean budget leaves no cushion when the house surprises you, and old houses usually do.
Scope changes mid-project. You can revise a scope, but you need lender approval first. Repairs discovered after the budget was submitted may not be credited retroactively when the inspector approves the next draw. The fixes are simple. Carry a contingency line. Move unspent amounts between lines, such as shifting savings from framing to electrical, with the lender’s sign-off. Get changes approved in writing before the work is done.
Bridge deals without rehab. If there is no renovation, there is no scope to size from. Bridge purchases without rehab typically run up to 80% of the purchase price, subject to lender guidelines.
Refinance requests. Cash-out and rate-and-term refinances on hard money typically run up to 65% of value. These are sized on value, not on a scope.
The loan is not cash. A hard money approval is not cash in your account. If you tell a seller it is cash and waive your financing contingency, you can lose your earnest money if the lender does not fund. Keep the contingency unless your lender has put the approval in writing.
Property and location limits. The program covers non-owner-occupied residential property of 1 to 4 units. Commercial, land, and owner-occupied homes are not offered. Hard money is available in 41 markets, including Washington, D.C., and a few places are excluded.
What Underwriters Cut or Flag
Most trimmed budgets fall into a few patterns. Knowing them lets you fix the scope before the lender sees it.
- Round-number lines. A flat line with no breakdown reads as a guess.
- Missing trades. Permits, dumpsters, demolition, and cleanup are often left out and added back.
- Low pricing. Labor priced under local norms gets raised.
- Over-improvement. Finishes beyond what neighborhood comps support add cost without adding appraised value.
- A plan that does not reach the ARV. If the budget is too thin for the claimed value, the file stalls or gets cut back.
An over-ambitious scope is the mirror problem. If the work you want pushes project cost past the point where 75% of ARV covers it, you either fund the gap or trim the scope. Trimming is usually the smarter move. A kitchen gut that the comps do not reward is the first thing to cut.
What the Decision Looks Like in Practice
Start from the exit and work backward. The lender will, so you should too.
First, price the property using ARV from real renovated comps. Second, write a scope in the lender’s format with contractor bids behind it. Third, add contingency. Fourth, run both tests yourself using your experience tier. Fifth, subtract the loan from total project cost and add closing costs, carry, and draw fees. That is your real cash requirement, and it is usually larger than the down payment alone.
Then ask whether the cash and the contingency fit your reserves. Hard money terms run 6 to 18 months, interest-only, with no prepayment penalty. There are no multi-year structures on the current program. If your plan is a rental hold instead of a sale, the loan has to be refinanced inside that window. Lendmire’s piece How a Hard Money Lender Sizes the Maximum Term for a Flip shows how that window gets set.
That is where the exit meets long-term financing. Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized, and Lendmire brokers that path. A DSCR refinance is its own loan. It is sized on the refinance appraisal and the rent test, not on your scope or draw schedule. For the mechanics of that second loan, see the complete DSCR loans guide. One caution: the hard money payoff plus exit costs has to fit under what that refinance appraisal supports.
Tax treatment varies; consult a qualified professional.
Key Terms Defined
Scope of work: An itemized list of every repair, by area and trade, with a cost and a short description for each line.
Rehab budget: The total of all scope lines, plus contingency, that the lender tests and holds back.
After-repair value (ARV): The lender’s estimate of what the property is worth once the planned work is done.
Loan-to-cost: The loan as a share of purchase price plus rehab budget.
Holdback: The part of the loan the lender keeps and releases as work is completed.
Draw: A payment from the holdback, made after an inspector confirms a stage of work.
Contingency: A cushion line in the budget for repairs you did not see coming.
Frequently Asked Questions
Can a bigger scope get me a bigger loan?
Only up to a point. A larger budget raises project cost, so the cost-based limit grows. The ARV cap does not move, so past a certain size the 75% of ARV limit controls. A bigger scope also means more of your own cash if the cap binds.
Do I need contractor bids before I apply?
Many lenders want them, and the scope is stronger with them. Light cosmetic rehabs may pass with a simpler breakdown, particularly for experienced borrowers. Heavier jobs and larger loans typically call for bids and a line-item scope.
Does the lender fund my rehab money up front?
No. The rehab funds are held back and released in draws as completed work is verified. Plan to cover the early phases yourself and get repaid as each stage passes inspection.
What happens if my costs go over budget?
Overruns are usually your cash. A contingency line in the submitted budget gives you room, and unspent amounts can often be shifted between lines with lender approval. Repairs found later may not be credited to earlier draws, so get changes approved before the work is done.
Is the 70% rule the same as the lender’s cap?
No. The 70% rule is a screening formula for your maximum offer. Lenders on this network cap flip loans at 75% of ARV, and they size leverage separately as a share of project cost, varying by lender, property, and experience.
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. Reach the team at 828-256-2183 or request a quote through Lendmire’s site.
About Lendmire
Lendmire, NMLS# 2371349, is a non-QM mortgage broker serving real estate investors in 41 markets, including Washington, D.C., through DSCR investor loan programs. Qualification is generally reviewed around the subject property’s rental income, not the borrower’s W-2 history — a practical fit for LLC-titled portfolios and self-employed investors. All scenarios remain subject to lender review and program guidelines. Two consecutive Scotsman Guide Top Mortgage Workplace recognitions (2025, 2026).
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References
1. HomeLight: What Is the 70% Rule in House Flipping
2. FlipperForce: The 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: How a Hard Money Lender Uses the Appraisal to Size a Loan · How a Hard Money Lender Sizes the Maximum Term for a Flip · How a Hard Money Lender Counts Seasoning on a Flip
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.