The Quick Read: A DSCR loan is sized against appraised value and then checked against a separate rent-coverage test. A hard money loan is sized against project cost and then capped by a share of after-repair value. The same fixer is therefore measured on two different bases, and whichever limit is tighter controls how much you can borrow. Most investors who buy a true fixer use both loans in sequence rather than choosing one.
- Hard money lends against cost (purchase plus rehab), capped at 75% of after-repair value.
- DSCR lends against the lender’s own appraised value, and rent must also cover the payment.
- A DSCR loan generally fits a property that is rentable or already rented, not one that needs gutting.
- The exit only works if the appraised value is high enough to pay off the bridge at the refinance cap.
- Program figures vary by lender, property, and experience, and nothing here is a commitment to lend.
The Honest Answer: Who Each Loan Is Really For
Hard money is for the investor who needs funding while the property is still a project. It lends against what you are spending, releases rehab money in draws, and expects a short stay. A DSCR loan is for the investor who holds. It lends against what the finished property is worth and whether the rent covers the payment.
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.
Neither loan is a substitute for the other on a true fixer. A DSCR loan usually will not fund a house that cannot be rented today. A hard money loan is not meant to be your long-term hold loan, because its term is short and the principal comes due at maturity.
The better question is how the two connect. Lendmire’s complete DSCR loans guide covers the long-term side of that handoff in detail. This article focuses on the math that decides whether the handoff works.
Key Terms Defined
- Loan-to-value (LTV): the loan balance divided by the property’s appraised value.
- Loan-to-cost (LTC): the loan balance divided by purchase price plus rehab budget, a formula Nav also lays out.
- After-repair value (ARV): the estimated value once the work is finished, which is a projection until an appraiser confirms it.
- DSCR: monthly rent divided by the property’s full monthly payment (principal, interest, taxes, insurance, and any HOA dues).
- Seasoning: the time you must own the property before a lender sizes a refinance on appraised value rather than cost.
- Draw: a release of held-back rehab funds after completed work is verified.
Side-by-Side
The table below reflects typical network guidelines. Hard money figures vary by lender, property, and experience. DSCR figures vary by lender, leverage, and credit profile.
| Factor | DSCR Loan | Hard Money Loan |
|---|---|---|
| Sizing basis | Appraised value (LTV) | Project cost (LTC), ARV cap |
| Second test | Rent coverage ratio | Lesser of cost test and ARV cap |
| Qualification focus | Property rent, credit, reserves | Deal, rehab plan, exit, experience |
| Property condition | Rentable or rent-ready | Pre-rehab and heavy rehab |
| Rehab money | Not designed to fund it | Draws against completed work |
| Term structure | 30-year fixed spine | 6-18 months, interest-only |
| Credit floor | 620 in parts of network, 660 common | 620, extra conditions below 660 |
| Reserves | Often about 6 months of PITIA | Liquidity for cash-in and draw float |
| Property types | Rentable residential, no manufactured | Non-owner-occupied, 1-4 units |
| Role | Long-term hold | Short-term bridge |
Both loan types are commonly written to LLC borrowers, subject to lender program eligibility. Neither is built around personal income or debt-to-income ratios.
Why the Same Fixer Gets Measured Two Ways
A percentage means nothing until you know what it is a percentage of. Loan-to-value divides by what the property is worth. Loan-to-cost divides by what you are putting into it. On a fixer, those two numbers can be far apart, because the work you are paying for is meant to create value.
Hard money sizing runs two tests and takes the lower. The cost test applies a percentage to purchase plus rehab. In Lendmire’s network, fix-and-flip leverage is tiered by completed projects: 85% of project cost with fewer than two, 90% at two or more, and 93% at five or more. The value test caps every tier at 75% of after-repair value. Up to 100% of the rehab budget funds in draws against completed work. That is a rehab-budget figure, not a purchase LTV.
DSCR sizing also runs two tests. The value test applies a loan-to-value cap to the lender’s own appraisal. Purchase files most often land at 75% to 80% LTV, with select high-leverage programs reaching 85% for borrowers at roughly a 700 score or above. The coverage test then asks whether the rent supports the payment. Select programs start at 1.00. A separate select-lender path goes below 1.00, with leverage and terms adjusted.
Whichever DSCR test is tighter sets the loan. Rent can cap the loan before equity does, which surprises many investors.
The Break-Even Appraisal: Where the Two Loans Meet
Here is the single most useful calculation on a fixer. It uses ratios, not dollars, so you can apply it to any deal.
Take a bridge funded at the 90% tier. The cost test lends 90% of project cost, and the ARV cap lends 75% of after-repair value. The two limits are equal when ARV is 1.2 times project cost. Above that ratio, the cost test binds. Below it, the ARV cap binds and the bridge loan shrinks. The same logic gives about 1.13 times cost at the 85% tier and about 1.24 times at the 93% tier.
Now look at the exit. A rate-and-term refinance that only retires the bridge is a different file from a cash-out. Cash-out refinances are sized against appraised value and carry their own, more conservative limits than the cost-based bridge tiers, and a payoff-only refinance is sized the same way. Because the takeout loan is sized against value rather than cost, paying off a bridge funded at 90% of project cost requires an appraised value of about 1.2 times project cost, before closing costs and interest carry. Anything below that leaves a gap you must cover with cash. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Consider a modeled example. Suppose the appraisal comes in 5% below that break-even. The new loan then falls about 4.5% of project cost short of the bridge payoff. The investor either brings that cash to the table, waits for a reappraisal, or finds a different exit. A modest miss on value turns a smooth handoff into a cash call.
When a DSCR Loan Is the Better Fit
A DSCR loan wins when the property is ready to rent and you intend to keep it. The lender orders its own appraisal, and for a single-family property that report carries a rent schedule on Fannie Mae’s Form 1007. A two- to four-unit property uses the Form 1025 income report. Those forms are used here only as names for the appraiser’s value and rent opinions. They do not govern DSCR guidelines.
It is also the right choice in these situations:
- The work is cosmetic. If the home is livable and rentable, you may not need a bridge at all.
- You want a longer runway. The 30-year fixed is the spine, and extended terms and interest-only periods are available through select lenders.
- You are scaling. Qualification focuses on the property’s rental income covering the payment, subject to lender guidelines. Credit and reserves still matter, so it is not a free pass.
- The rehab is already done and seasoned. After about six months of ownership, a cash-out can size on appraised value.
Clearing 1.00 does not mean positive cash flow. DSCR compares rent to the payment only. Repairs, vacancy, management, utilities, and capital reserves all sit outside the number. A property can pass the coverage test and still be thin on real income. A larger down payment can lift the ratio, but it never overrides leverage caps, credit floors, reserve rules, or property eligibility.
The flip side is simple. If the house needs a roof, a kitchen, and a rewire before anyone can live there, a DSCR loan is the wrong tool for the purchase.
When Hard Money Is the Better Fit
Hard money wins when the property cannot qualify for rental financing yet. It can fund a pre-renovation purchase, advance the rehab in draws, and bridge to a stabilized property. Underwriting is asset-based. The lender looks at the property, the scope of work, and the exit plan.
It fits best in these cases:
- Heavy rehab. The house is not rentable, and cost-based sizing is the only way to fund both purchase and repairs.
- A purchase with little cash. At the top experience tier, leverage can reach 93% of project cost, though it is reserved for experienced investors. There is no true 100% purchase program. A claim of 100% financing generally means 100% of the rehab or of cost inside the ARV cap, not 100% of value.
- A bridge without rehab. Purchases without renovation can fund up to 80% of the purchase price.
- A lower credit profile with a strong deal. The minimum score is 620, with additional conditions below 660, and first-time investors qualify at the lowest leverage tier.
The tradeoffs are real. Draws reimburse finished work, so you need working capital to carry the early rehab. The term runs 6 to 18 months, and the principal comes due at maturity. If the project slips, you face a maturity date with no exit.
Business-purpose lending also carries a different regulatory footing than owner-occupied mortgages. Consumer lending rules generally exempt credit extended primarily for a business or commercial purpose, which is one reason both loans look at the property and the deal rather than your personal income.
Planning the Exit Before You Buy
The mistake seen most often is sizing the bridge by what the bridge lender will advance. The safer approach is to size it by what the exit lender will lend on value. Work backward from the DSCR loan.
1. Estimate the appraised value you can defend. The DSCR lender uses its own appraisal, not your ARV spreadsheet.
2. Apply the refinance cap. Around 75% LTV is the common ceiling on a cash-out, and seasoning of about six months is the usual expectation. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
3. Test the rent. Check that the appraiser’s rent opinion, not your projected rent, clears the program’s coverage floor at the new loan size.
4. Compare to the bridge payoff. If the payoff exceeds the new loan, plan the gap in cash, an extension, or a lower bridge advance. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Inside the seasoning window, files are commonly sized on cost basis rather than appraised value. That can leave you with a loan that only retires the bridge and releases no equity. Many investors then refinance out of hard money into long-term DSCR financing once the property is stabilized, and Lendmire arranges that path. Lendmire’s piece Sell the Flip vs. Refinance Out of Hard Money Into a DSCR Rental walks through that decision.
Common Mistakes on a Fixer
- Treating loan-to-cost as a purchase LTV. A 90% cost figure is not 90% of the price. It blends purchase and rehab.
- Assuming ARV carries into the DSCR loan. Your projection is not the lender’s appraisal.
- Ignoring the rent test. A strong appraisal does not fix weak coverage.
- Forgetting the working-capital float. Draws arrive after the work, not before.
- Skipping the maturity date. Seasoning, appraisal timing, and bridge maturity must all line up.
- Counting on a lender to write a rehab-funded DSCR loan. DSCR is designed for rent-ready or stabilized rentals.
Tax treatment varies by how funds are used and how the property is held, so consult a qualified professional before relying on any deduction.
A Balanced Verdict
Choose DSCR when the property is rentable, you plan to hold, and the numbers clear both the value cap and the coverage floor. Choose hard money when the property needs real work, you want cost-based leverage, and you have a believable exit. For a genuine fixer rental, the better answer is often both: a bridge to buy and renovate, then a DSCR loan to hold.
The flip point is the appraisal. If you cannot defend a value near 1.2 times project cost at the 90% tier, the bridge may cost you more cash at exit than you planned. In that case, a lower bridge advance, a different property, or a longer plan is the smarter call.
Frequently Asked Questions
Is loan-to-cost the same as loan-to-value?
No. Loan-to-cost divides the loan by purchase price plus rehab. Loan-to-value divides it by the property’s appraised value. On a fixer the two diverge, because the work you fund is meant to raise value. Hard money applies a percentage of cost, then caps it at 75% of after-repair value.
Can a DSCR loan buy a fixer?
Sometimes, if the property is rentable as it stands. A house that needs major work often cannot qualify until the improvements are complete. A cosmetic fixer can work. A gut rehab usually calls for a bridge first, subject to lender guidelines.
Does the DSCR lender use my ARV?
No. The lender orders its own appraisal and rent schedule. Your ARV is a planning estimate. The appraised value sets the loan-to-value test, and the appraiser’s rent opinion sets the coverage test.
What binds first, value or rent?
Either one can. The loan is limited by whichever test is tighter. Because the payment rises with loan size, rent can cap the loan before equity does, especially at higher leverage.
What if the bridge matures before I can refinance?
You have three options: a payoff-only refinance, waiting out seasoning, or a written extension of the bridge. Plan the exit before you buy, because a maturity date does not move for a slow appraisal.
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.
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.
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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. Nav – Hard money loans and 100% financing
2. Fannie Mae – Selling & Servicing Guide Forms
3. CFPB – 12 CFR 1026.3 Exempt transactions
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: DSCR Loan vs Hard Money for a Small-Balance Rental Purchase · How to Move a Rental Into an Interest-Only DSCR Loan · Should You Cash Out a Kansas City Rental on a DSCR 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
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.