The Quick Read: A hard money lender sizes the loan by running two tests on the deal and funding the lower result. One test is a percentage of project cost, meaning the purchase price plus the approved rehab budget. The other is a cap tied to the after-repair value (ARV) of the finished property.
- The rehab budget feeds both tests, so a bigger scope raises the cost test but can run into the value cap.
- Rehab money is held back and released in draws as work is completed and inspected, not wired at closing.
- On most files across the wholesale network, fix-and-flip leverage runs 85%, 90%, or 93% of project cost depending on completed projects, with every tier capped at 75% of ARV.
- Cash at closing depends on whichever test binds, plus fees and reserves. No true 100% purchase program exists.
Program figures here are typical ranges from select lenders in the network. They vary by lender, property, and experience, and none of it 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
- Loan-to-cost (LTC): the loan as a share of purchase price plus rehab budget.
- After-repair value (ARV): the estimated market value once the renovation is finished.
- Loan-to-ARV: the loan as a share of that finished value.
- Holdback: the rehab money the lender keeps in escrow and releases as work is done.
- Draw: one release of holdback funds after a phase of work passes inspection.
- Scope of work: the line-item list of repairs, with costs and a timeline.
How the Rehab Budget Becomes the Loan
The loan is the lesser of two numbers. The first is the cost test: the leverage tier times (purchase price plus rehab budget). The second is the ARV test: the cap, 75% of ARV across the network, times the appraised value. Whichever is lower is the loan.
Here is the sequence a lender follows.
1. Submission. The investor sends the property details, the scope and budget, the comps, and the ARV estimate.
2. Valuation. The lender orders an appraisal or broker price opinion. It is typically at the borrower’s expense.
3. Purchase basis. The purchase advance rests on the lesser of the price or the as-is value.
4. Budget validation. The lender reviews the line-item scope and decides whether the budget is realistic.
5. Cost test. The tier percentage is applied to purchase plus approved rehab.
6. ARV test. The 75% cap is applied to the appraised ARV.
7. Lower of the two. That result is the loan ceiling.
8. Cash you bring. The gap between total cost and the loan, plus fees, interest reserves, and working capital.
The tier depends on experience. Across the network, 93% of project cost is generally reserved for investors with five or more completed projects. Two or more completed projects typically earns 90%. Fewer than two lands at 85%. Up to 100% of the rehab budget itself can fund in draws against completed work. That is a rehab-budget figure, not a purchase LTV, and it is where the “100% financing” myth comes from. The top tier is reserved for experienced investors, and every figure varies by lender, property, and experience.
Lendmire’s article How a Hard Money Lender Sizes a Flip Loan From Your Scope of Work goes deeper on the scope side.
What the Lender Checks in Your Budget
The budget is not accepted at face value. Lenders want a line-item scope, ideally prepared by a contractor, with a timeline. The timeline matters because it sets the draw milestones.
| What gets reviewed | What gets challenged | What the borrower can do |
|---|---|---|
| Line-item costs | Figures below market pricing | Use a licensed contractor’s bid |
| Timeline | Unrealistic phase durations | Tie phases to clear milestones |
| Scope vs. comps | Work that comps don’t support | Match upgrades to the renovated comps |
| Contingency | Missing or thin cushion | Build one in, but plan to fund it yourself |
Lenders generally price the budget as if a third party were doing the work. A do-it-yourself budget that ignores labor often gets adjusted. Contingency is the quiet gap. Since the lender funds only the approved rehab figure, treat contingency as cash you carry unless the lender approves it inside the budget.
How ARV Gets Set (And Why Yours Isn’t the Final Word)
ARV comes from renovated comparable sales nearby. The Motley Fool’s ARV explainer describes it as the property’s value after renovation, based on recent sales of similar properties. It also warns against trusting someone else’s ARV or repair estimates without checking them. US Realty Training frames the same idea: ARV is built from renovated comps and caps what a flip can pay.
Your estimate is an input. The lender’s appraisal or broker price opinion is what the cap uses. That distinction drives most surprises at closing.
Worked Examples (Modeled, Not Market Data)
These are modeled assumptions expressed as percentages of ARV, so no dollar amounts are needed. All three use a 90% of project cost tier.
| Input | Example 1: Cost test binds | Example 2: ARV cap binds | Example 3: Appraisal comes in low |
|---|---|---|---|
| Purchase plus rehab | 70% of ARV | 85% of the borrower’s ARV | 70% of the borrower’s ARV |
| Cost test result | 63% of ARV | 76.5% of ARV | 63% of the borrower’s ARV |
| ARV cap | 75% of ARV | 75% of ARV | 75% of a lower appraisal |
| Loan funded | 63% of ARV | 75% of ARV | Cap now lower than cost test |
| Cash you bring | 7% of ARV | 10% of ARV | Rises further |
In Example 1, the cost test is lower than the cap, so the borrower brings 7% of ARV plus fees and reserves. In Example 2, the cost test would give 76.5%, but the cap cuts the loan to 75%. The extra rehab spending is funded entirely by the borrower. In Example 3, a 20% lower appraisal pulls the cap below the cost test. Suppose the borrower’s ARV was 100 and the appraisal says 80. The cap is now 60% of the original figure, below the 63% cost result. The loan shrinks and cash needed grows.
Think of it as a tradeoff. Adding scope raises the cost test, but once the cap binds, each added rehab dollar stops being fundable. A bigger renovation only helps if the appraised ARV rises with it.
Which Limit Binds on Which Deal
The cap tends to bind on thin deals. The cost test tends to bind on deals with real margin.
| Deal shape | Usually binds | Why |
|---|---|---|
| Wide margin, modest rehab | Cost test | Cost sits well below the ARV cap |
| Thin margin | ARV cap | Cost approaches ARV |
| Rehab-heavy | ARV cap, often | Large budget pushes total cost up |
| Overpaid purchase | ARV cap | Price eats the margin |
Thin deals are where investors misjudge. Soft costs like interest carry, fees, and holding costs make a deal that looks like 65-70% of ARV on paper behave like something much tighter. A common screen for purchase price is the 70% rule. The Motley Fool gives it as a rehabber’s screen and notes that some investors stretch the purchase price further in tight markets, at higher risk. It is a purchase-offer heuristic, not a lender sizing formula.
Holdback and Draws: What They Do to Your Cash
Rehab money is held back at closing. The settlement statement shows it going to the lender to hold in escrow. Some lenders release a small increment up front. The rest comes through draws.
The practical effect is a funding gap. The borrower typically pays for a phase of work first, the lender inspects it, and then the lender reimburses. Closing cash must cover the purchase gap, fees, and reserves. Working capital must cover phase one of the work before the first reimbursement lands. Some lenders also charge a fee per draw, so the number of draws affects cost.
On most files, terms run 6-18 months, interest-only, with no prepayment penalty. Carry cost grows as draws release, because interest accrues on the drawn balance. That is why the draw plan belongs in the underwriting conversation, not an afterthought.
Brokers who place these files across a network see the same pattern: the investors who get surprised are the ones who read the leverage tier as cash in hand. The quoted percentage is a ceiling on what is funded, not a promise of what lands at closing.
Where the General Rule Breaks
- Rehab-heavy projects. Some lenders limit rehab size relative to purchase price, especially for newer investors.
- Bridge purchases with no rehab. These are sized differently, up to 80% of purchase price on typical programs, with no holdback.
- Refinances. Cash-out and rate-and-term refinances on the hard money side run up to 65% of value.
- Ground-up construction. It runs under separate rules: up to 90% of cost and 75% of completed value at 3+ completed projects, subject to lender guidelines.
- Government rehab loans. The FHA 203(k) is built for owner-occupants. HUD’s handbook text shows a value-driven feasibility test, comparing as-is value plus rehab cost to after-repaired value. Investor access in that chapter is limited to HUD-owned properties. Investors generally cannot use it on a normal acquisition.
Collateral is non-owner-occupied residential property of 1-4 units, with ground-up construction to 10 units. Credit minimums sit at 620, with additional conditions below 660. Loan amounts run up to $5,000,000, with larger by exception.
When the Budget Changes
Budgets move. A bid comes in higher, scope gets cut, or the appraisal revises ARV. The funded amount moves with the binding test.
If the cost test binds, a larger approved budget raises the loan, though the borrower still funds the gap. If the cap binds, a larger budget raises nothing, and the borrower covers it all. If scope is cut, the cost test falls, and if the cap was binding, the loan may not change at all. Lendmire’s piece Can a Hard Money Lender Increase the Rehab Budget Mid-Project? covers that mid-stream question directly.
Mistakes That Distort the Math
- Treating the leverage percentage as cash delivered at closing.
- Using your own ARV instead of the appraised one.
- Forgetting interest carry and fees when judging the margin.
- Leaving out contingency, then funding the overrun from personal cash.
- Skipping the draw plan, then running short between reimbursements.
- Reading the rehab funding share as a purchase LTV.
Pre-Application Checklist
1. Line-item scope with a contractor bid and timeline.
2. Three to five renovated comps supporting your ARV.
3. Purchase contract.
4. Record of prior completed projects, since the experience tier sets your leverage.
5. A self-sizing worksheet: run the cost test, run the 75% ARV cap, take the lower, then add fees, reserves, and phase-one working capital.
The Exit Matters
A flip exits by sale. A rental hold exits another way. Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized, and Lendmire brokers that path. The payoff includes the purchase advance plus every rehab dollar drawn, so the refinance has to cover the whole balance. DSCR compares rent to the full monthly obligation, so it measures coverage, not cash flow. The complete DSCR loans guide covers the long-term side.
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. 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.
Frequently Asked Questions
Does the lender fund 100% of the rehab budget?
Up to 100% of the rehab budget can fund in draws against completed work on typical programs, subject to lender guidelines. That is a share of the rehab line only. It is not a 100% purchase loan, and cash is still required at closing.
Is the rehab money released at closing?
Mostly not. The holdback goes into escrow, and some lenders release a small increment at closing. The rest arrives as reimbursements after each phase of work is completed and inspected.
What if the ARV comes in lower than I projected?
The 75% ARV cap applies to the appraised value, so a lower appraisal can shrink the loan dollar for dollar once the cap binds. The cash you need rises. Pressure-test your comps before applying.
Can I finance contingency?
It depends on the lender and whether contingency is approved inside the budget. Plan to fund it yourself, because the lender advances only against the approved scope.
Why does my cash to close exceed my down payment?
The gap between total cost and the loan is only part of it. Fees, interest reserves, and working capital for the first phase of work come on top. Reimbursement draws mean you carry each phase before it is repaid.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349) arranging DSCR investor loans in 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed around property-level rental income rather than personal income, subject to lender and program guidelines, a fit for self-employed investors and LLC-owned portfolios. Lendmire was recognized as a Scotsman Guide Top Mortgage Workplace in 2025 and 2026.
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References
2. US Realty Training: What is After Repair Value
3. HUD Handbook 4240.4 REV-2, Ch. 6 (203(k) HUD-owned)
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 Portfolio DSCR Lender Sizes a Loan Without Tax Returns · Hard Money Loan Paperwork for Investors Preparing Their First Deal · How a Lender Sizes a Second HELOC After the First Is Closed
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.