The Quick Read: When a property was bought recently, many hard money lenders size a cash-out refinance on what you documented putting into it, which is the purchase price plus receipted rehab, rather than on what a new appraisal says it is worth. Which basis a lender uses depends on how long you have owned the property, how well you can prove your spend, and the lender’s own policy. Lendmire is a mortgage broker, not a lender, so the useful move is to match your file to the lender whose sizing rule fits your deal.
- Cost basis means purchase price plus documented rehab. Undocumented spend is usually left out.
- Inside a lender’s waiting period, the loan is often sized on the lower of cost or appraised value.
- Across the hard money programs we place files with, cash-out and rate-and-term refinances run up to 65% of value, varying by lender, property, and experience.
- The new lender’s own appraisal sets value. Your projected after-repair value only sized the original loan.
- If the payoff on your bridge loan is larger than the cost-based loan, the exit may not close without extra cash.
What Does “Lending on Cost Basis” Actually Mean?
Cost-based lending means the loan cap is tied to your documented investment, not to market value. Say you bought a worn-out duplex, spent on a rehab, and now want to refinance out of your short-term loan. A lender that sizes on cost looks at your settlement statement and rehab receipts first. A lender that sizes on value looks at the appraisal first.
Both approaches are real. They give different answers when the rehab created a lot of value, because cost-based sizing leaves that created equity untouched until the waiting period ends.
That waiting period has a name. Seasoning is the time a lender wants you to have owned the property before it lends on appraised value. It is lender policy, not a law. Each lender sets its own, and the wholesale network we work through shows a range of them.
Forbes Advisor notes that lenders commonly impose a seasoning period from acquisition, and that you may need to wait longer for value to rise. Lofty’s BRRRR guide advises confirming the lender’s seasoning rule before you buy and budgeting carrying costs for the full wait. Both say six months is a common starting point. For DSCR cash-out refinances, about six months is also the common expectation across our network. Hard money lenders set their own windows, so treat that as a reference point, not a promise.
How Do Hard Money Lenders Underwrite a Cash-Out on Cost Basis?
Underwriting follows a set order: classify the file, start the clock, pick the value basis, apply the leverage cap, test the documents, and close. The loan amount comes from the lower result. Here is each step in plain terms.
Step 1: Classify the file. A refinance that only repays your bridge loan and costs is payoff-only. A refinance that puts cash in your pocket is cash-out. The second carries tighter limits.
Step 2: Start the clock. Seasoning generally runs from the recorded deed or title date. Finishing the rehab does not start it. A tenant moving in does not start it either.
Step 3: Pick the value basis. Inside the waiting window, a lender that still lends typically uses the lower of cost basis or appraised value. After the window, it uses appraised value. Some lenders skip the waiting window for strong files, which is a good reason to ask more than one.
Step 4: Apply the leverage cap. The loan equals the program’s percentage times the chosen basis. In the hard money programs we place files with, cash-out and rate-and-term refinances run up to 65% of value, and that figure varies by lender, property, and experience. The new lender’s own ordered appraisal sets the value. Your own after-repair estimate does not.
Step 5: Document the basis. Lenders want the settlement statement from the purchase, receipted rehab invoices, and proof you paid them. Basis is only as good as the paper behind it. A cost you cannot document is likely excluded.
Step 6: Check the exit. Title pays off the old lender directly and the old lien is released. Whatever is left over is your cash back. If nothing is left, you did a payoff-only exit.
A Side-by-Side: The Same Deal on Cost and on Value
The numbers below are modeled index values, not dollars. They are not market data. Assume a property with a documented cost basis of 70 and an appraised value of 100. Assume a lender applies a 65% cap, the figure used for refinances in the hard money programs we broker.
| Sizing basis | Cap applied to | Loan (index) |
|---|---|---|
| Cost basis | 70 | 45.5 |
| Appraised value | 100 | 65.0 |
| Lower of the two | Cost, in this case | 45.5 |
The gap between 45.5 and 65 is the equity a cost-based loan strands. The bigger the forced appreciation, the bigger that gap. Near-market purchases lose little, because cost and value sit close together. Heavy rehabs and bargain buys lose the most.
This is why the question matters on the front end. If your hard money loan was drawn close to project cost, a cost-sized refinance may not even repay it.
Which Hard Money Cash-Out Refinance Lenders Lend on Cost Basis?
No single list answers this, and a broker should not hand you one. The lenders that write cost-based refinances depend on your situation: how recently you closed, how much equity you created, your credit profile, the property type, and the paper you can produce. The best program for your situation is the one whose sizing rule matches your timeline and your numbers.
Here is what our network’s hard money programs look like, always varying by lender, property, and experience:
- Collateral: non-owner-occupied residential, 1 to 4 units. Ground-up construction runs to 10 units.
- Loan size: up to $5,000,000, larger by exception. Smaller balances vary by lender.
- Terms: 6 to 18 months, interest-only, no prepayment penalty.
- Credit: a 620 minimum score, with additional conditions below 660.
- Underwriting: asset-based, meaning the property, your plan, and your exit carry the file.
- Footprint: 41 markets, including Washington, D.C.
Not on the sheet: commercial, industrial, land or lots, hospitality, and owner-occupied property. A bridge loan on those is not part of these programs.
Cost-based sizing is native to the purchase and rehab side of hard money. Fix-and-flip leverage runs 85% of project cost with fewer than 2 completed projects, 90% of project cost at 2 or more, and 93% of project cost at 5 or more. Every tier is capped at 75% of after-repair value. Bridge purchases without rehab run up to 80% of purchase price. The rehab budget itself can fund up to 100% in draws against completed work. That last figure is a rehab-budget number, not a purchase loan-to-value.
The refinance flips the logic back to value, at a lower cap. That is the whole point of understanding which basis your lender uses.
What Counts as Cost Basis, and What Gets Left Out?
Counted costs are the ones you can prove. Left-out costs are the ones you cannot. Treatment of holding costs and closing costs varies by program, so ask each lender before you assume anything.
Usually counted:
- The purchase price on the settlement statement.
- Rehab invoices with proof of payment.
- Contractor draws that were paid out and documented.
Often excluded or treated unevenly:
- Cash you paid a handyman with no invoice.
- Your own labor, sometimes called sweat equity.
- Holding costs such as interest and utilities, depending on the lender.
- Anything you cannot trace to a bank record.
Keep one clean folder from day one.
From the broker side of the desk, the pattern we see is simple. Files stall less on the numbers than on the paper. A tidy file with a settlement statement, a rehab ledger, and receipts moves through review with fewer questions. A pile of text messages and cash payments gets haircut.
Where the General Rule Breaks
The rule that cost caps the loan inside the waiting window has real exceptions. These are the ones that come up most.
The all-cash buyer. The agency world has a formal version of this idea, called delayed financing. Fannie Mae’s Selling Guide places a delayed financing exception inside its cash-out refinance rules. It still requires the other cash-out eligibility rules to be met, and cash-out pricing applies. That is a contrast point only. Agency rules do not govern non-agency investor loans, and each private lender sets its own. The concept shows up elsewhere because lenders borrow it.
A hard money purchase. Delayed-financing-style relief is built for buyers who paid cash. A property bought with a hard money loan carried a lien, so that logic usually does not fit. That is a practitioner reading, not a universal rule.
A line of credit that paid for both purchase and rehab. Some lenders count only the purchase piece toward proceeds. It varies by lender and by paperwork.
A maxed-out bridge. Suppose your bridge was drawn near the highest leverage the program allows. A cost-based exit capped below that may not repay it. Your options are to bring cash to closing, downsize to a payoff-only refinance, extend the bridge, or wait for value-based sizing.
Two clocks. Some lenders add rental seasoning, meaning a lease in place for a period, on top of ownership seasoning. Ask for both rules in writing before you plan your timeline.
Lenders with no seasoning at all. A few lenders will refinance on appraisal without a waiting period. They exist, but they are not the norm, and their terms can look different. A broker who shops several wholesale lenders can see those options. A single lender cannot.
What Does the Decision Look Like in Practice?
The decision is whether to exit now at cost or wait and exit on value. Here are three modeled borrowers, with no dollar figures, to show how it plays out.
Picture an investor who bought near market value and did a light cosmetic rehab. Cost and value sit close together, so a cost-based exit loses little. This borrower can refinance sooner without much sacrifice.
Say you bought a distressed rowhouse well under market and gutted it. The appraisal should come in far above your cost. A cost-based refinance would strand most of that created equity. Waiting for value-based sizing is likely worth the extra carry, provided your bridge term outlasts the wait.
Consider a borrower whose bridge was drawn near the top of the leverage allowed. Cost-based sizing at 65% may not clear the payoff. This borrower needs extra cash, an extension, or a plan to wait.
That runway point is the one most investors miss. Your bridge term should be longer than the seasoning wait. Hard money programs in our network run 6 to 18 months, interest-only, with no prepayment penalty. If the lender you want has a long seasoning window and your bridge is short, the numbers fight each other. Budget the carrying cost for the full wait, as Lofty advises.
Is the Hard Money Exit the Right Tool at All?
Hard money is a short bridge. It is meant to be replaced. Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized and rented, and Lendmire brokers that path. Our complete DSCR loans guide covers the full picture. DSCR loans are business-purpose investor loans designed for non-owner-occupied rentals, so they are reviewed differently from a standard owner-occupied mortgage.
A few figures help you compare the two exits. On standard rentals, DSCR cash-out refinances top out around 75% LTV across most of our network, with about six months of seasoning as the common expectation. That is a different ceiling from the 65% hard money refinance cap, and it is why many investors wait for the stronger exit. Coverage, meaning rent compared with the full monthly payment, is the other test. A coverage ratio of 1.00 is where select programs start, and stronger ratios open better leverage and terms. Programs below 1.00 are available through select lenders in the network, with leverage and terms adjusted. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Clearing that ratio is not the same as having positive cash flow. Repairs, vacancy, management, and utilities sit outside the calculation.
Key Terms Defined
Cost basis: the purchase price plus documented rehab costs that you can prove with receipts and payment records.
Appraised value: what the new lender’s own appraiser says the property is worth today.
Seasoning: the time a lender wants you to own a property before it lends on appraised value.
Loan-to-cost: the loan as a percentage of what the project costs you, rather than of what it is worth.
After-repair value (ARV): your projected value once the rehab is done. It sizes the bridge, not the refinance.
Payoff-only refinance: a refinance that repays the old loan and costs, with no cash back to you.
Cash-out refinance: a refinance that pays off the old loan and returns the leftover to you as cash.
Asset-based underwriting: a review that leans on the property, your plan, and your exit instead of your personal income.
How Do You Prepare Before You Ask a Lender?
Preparation decides how much a lender can size. Ask these questions up front:
1. How long must I own the property before you lend on appraised value?
2. Before that, do you size on cost, value, or the lower of the two?
3. Which costs count toward cost basis, including holding costs and closing costs?
4. Do you require a lease and proof of rent in place?
5. What is your maximum loan-to-value on a cash-out refinance for my property type?
6. Does your program carry a prepayment penalty on the exit?
Gather your settlement statement, rehab invoices, proof of payment, current insurance, the lease if rented, and a payoff statement from your bridge lender. Credit matters too. A 620 minimum score applies in these hard money programs, with extra conditions below 660, and first-time investors qualify at the lower leverage tiers. Everything varies by lender, property, and experience, and nothing here is a commitment to lend.
Frequently Asked Questions
Does a hard money lender always size a refinance on cost basis?
No. Many size on cost only inside their waiting period, then switch to appraised value. Some size on the lower of the two the whole way through. Policy is set by each lender, so ask for the rule in writing before you rely on it.
Does my after-repair value size the new loan?
No. The new lender orders its own appraisal. Your after-repair estimate sized the bridge, but the refinance follows the fresh appraisal and the lender’s leverage cap. In the hard money programs we work with, that cap is up to 65% of value on cash-out and rate-and-term refinances, varying by lender, property, and experience.
Can I get cash back if the loan is sized on cost?
Sometimes, but not always. The loan must first repay your bridge lender and costs. If your bridge was drawn close to project cost, a cost-sized loan may leave nothing over. Check the payoff against the likely loan before you commit to the exit.
When should I move from hard money into a DSCR loan?
Once the property is stabilized, rented, and past the seasoning window. DSCR cash-out refinances top out around 75% LTV on standard rentals across most of our network, and a lease in place helps the file. Qualification runs primarily on property-level rental income covering the payment, subject to lender guidelines.
Can a broker find a lender that skips seasoning?
A broker that shops multiple wholesale lenders can see which programs fit your timeline, including ones with shorter waits. Availability and terms vary by borrower, property, and lender, and a shorter wait can come with adjusted terms.
Next Steps
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. Lendmire arranges these loans through a wholesale network and the lender reviews and approves each file. Cost-based sizing rewards the investor who knows the waiting window and the documentation before the bridge loan is signed.
About Lendmire
Lendmire — NMLS# 2371349 — is a DSCR and non-QM mortgage brokerage with investor loan programs in 41 markets, including Washington, D.C. DSCR eligibility is commonly reviewed by the lender around property-level rent rather than personal income documentation, subject to lender guidelines, and the brokerage helps arrange financing for LLC-owned portfolios beyond conventional financed-property limits. Recognized by Scotsman Guide as a Top Mortgage Workplace in 2025 and 2026.
Get Started
Ready to find the right loan for you?
See your offer in seconds. No credit pull, no obligation.
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. Forbes Advisor: The BRRRR Method
3. Fannie Mae Selling Guide: Cash-Out Refinance Transactions (B2-1.3-03)
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 Cash-Out Refinance Requirements With a Lease That Ends Next Month · Hard Money Cash-Out Refinance Requirements Within Six Months of Buying the Property · DSCR Cash-Out Refinance Requirements to Fund a Renovation
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
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.