The Quick Read: Rehab money is not counted in plain loan-to-value on the property as it sits today. It shows up in two other tests: loan-to-cost, which adds the rehab budget to the purchase price, and loan-to-after-repair-value, which measures the loan against the finished value. The lender runs both tests and funds the lower result.
- Rehab funds are usually held back and released in draws as inspected work is completed. They are not wired at closing.
- Across Lendmire’s wholesale network, fix-and-flip leverage is typically set as a share of project cost, with every tier capped at 75% of after-repair value.
- Up to 100% of an approved rehab budget can fund in draws against completed work. That is a rehab-budget figure, not a purchase loan-to-value.
- Only the approved scope and budget count. Overruns are usually the borrower’s to cover.
- All figures vary by lender, property, and experience, and nothing here is a commitment to lend.
Key Terms Defined
As-is value: What the property is worth today, before any work. Value-based tests on the purchase side look at this number.
After-repair value (ARV): The appraiser’s estimate of what the property will be worth once the approved renovation is finished.
Loan-to-value (LTV): The loan divided by a property value. On a rehab deal the word is ambiguous, because the value can be the purchase price, the as-is value, or the ARV.
Loan-to-cost (LTC): The loan divided by total project cost, meaning purchase price plus the approved rehab budget.
Loan-to-ARV (LTARV): The loan divided by the appraised after-repair value.
Holdback: The part of the loan the lender commits but keeps until work is done.
Draw: A release of held-back funds after the lender confirms a phase of work is complete.
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.
How Rehab Money Enters Each Ratio
Rehab dollars count fully in cost-based sizing, count only indirectly in value-based sizing, and do not count in as-is value at all. That is the whole puzzle behind the confusing word “LTV” on a renovation loan. The table shows each test side by side.
| Ratio | Denominator | Rehab counted? |
|---|---|---|
| As-is LTV | Today’s value | No, work isn’t done |
| Loan-to-cost | Purchase + rehab budget | Yes, in full |
| Loan-to-ARV | Appraised finished value | Indirectly, via value |
| Rehab draw share | Approved rehab budget | It is the budget itself |
The as-is test ignores rehab because a half-finished plan has no market value yet. A lender who sized only on today’s value would starve a heavy renovation of funds.
The cost test is generous to the borrower because it treats the planned work as a real expense worth financing. The ARV test pulls the other way. It checks that the finished property is worth enough to cover the loan if the borrower walks away mid-project.
Spending more does not raise the ARV. Comparable sales do.
The Five-Test Sizing Method
The maximum loan is the lower of the cost-based cap and the value-based cap. Underwriting follows five steps.
1. Set the ARV. The lender’s appraiser sets the figure that counts, not the borrower’s estimate. Appraisers typically build it from sales of comparable renovated homes. Stessa describes the same inputs: square footage, bed and bath count, lot size, age, and condition. An as-is value is often ordered alongside it.
2. Approve the budget. The lender reviews the scope of work and the contractor bids. Only the approved budget counts toward cost.
3. Compute the cost cap. Multiply the leverage tier by purchase price plus approved rehab.
4. Compute the value cap. Multiply the ARV cap by the appraised ARV.
5. Take the lower number. The lower cap is the ceiling. Any gap between that ceiling and total project cost is the borrower’s cash.
Lendmire arranges these loans through its wholesale network. Typical fix-and-flip leverage there is set by documented completed projects. It runs 93% of project cost at five or more completed projects, 90% of project cost at two or more, and 85% of project cost with fewer than two. Every tier is capped at 75% of after-repair value. Those tiers reflect select-lender guidelines and vary by lender, property, and experience.
One Deal, Run Two Ways
Run the numbers using percentages of ARV instead of dollars. These are modeled assumptions, not market data. Say the appraiser confirms an ARV, and call that value 100 points.
Variant one: the cost test binds. The purchase price equals 60 points and the approved rehab budget equals 20 points. Project cost is 80 points. An investor at the 90%-of-project-cost tier gets a cost cap of 72 points. The ARV cap is 75 points. The lower number wins, so the loan is 72 points. The borrower covers the remaining portion of project cost plus closing costs.
Variant two: the ARV test binds. The purchase price equals 60 points and the rehab budget equals 25 points. Project cost is 85 points. The same 90% tier would suggest 76.5 points, but the ARV cap stops at 75. The loan is 75 points. The borrower covers 10 points, more than the cost test alone would suggest.
The pattern holds across deals. A heavy rehab on a cheap purchase pushes total cost up against the ARV cap. A light rehab on a high purchase price tends to leave the cost test in control.
What a low appraisal does. Suppose the ARV comes back 5% below the investor’s estimate. In variant one, the ARV cap drops to about 71.25 points of the original estimate. That is below the 72-point cost cap, so the value test now binds. The borrower’s cash rises by roughly three-quarters of a point of the original ARV. A larger drop in ARV costs the borrower more.
Holdback and Draws
Lenders hold rehab money because they lend against the finished value. A borrower who could take the full rehab amount on day one could spend it elsewhere. The lender would then be left holding an unrenovated property worth much less than the loan.
Here is how the mechanics usually run:
- At closing: The acquisition advance funds. The approved rehab budget is committed but held.
- During the project: The borrower finishes a phase, often with their own cash first, then requests a draw.
- At each draw: The lender confirms the work, commonly through an inspection, photos, invoices, and contractor lien waivers.
- After confirmation: The lender releases funds for the completed work.
Across Lendmire’s network, up to 100% of the approved rehab budget can fund in draws against completed work. The phrase “100% of rehab” describes that budget only. It does not describe a 100% purchase loan. There is no true 100% purchase program, and the purchase-price advance is capped separately.
Peak cash exposure comes early. You may carry the first phase of work before the first reimbursement arrives, so bring more liquidity than the closing-day number suggests.
Interest is the lender-specific detail. On many programs interest accrues on the drawn balance. Some lenders charge on the full committed loan from day one. Ask which applies. The terms in the network run 6 to 18 months, interest-only, with no prepayment penalty, so the carry cost over a long rehab matters.
What Counts and What Does Not
The rehab money counts only if it is in the approved budget. Underwriters want a written scope of work and contractor bids that match it.
- Overruns: Spending beyond the approved budget is usually not funded. You pay the overrun, and it eats the equity cushion the ARV cap was meant to protect.
- Your own cash on early work: Money you spend before a draw is generally reimbursed only if it matches the approved scope and passes inspection.
- Your own labor: A lender may not count unpaid labor as a reimbursable cost. Ask before assuming it does.
- Experience tiers: Leverage steps up with documented completed projects. The top tier is reserved for experienced investors. First-time investors generally qualify at the lower tiers.
- Credit: A 620 minimum score applies, with additional conditions below 660. Underwriting stays asset-based, meaning the property, the plan, and the exit drive the decision.
Where the General Rule Breaks
Some deals do not fit the standard cost-plus-value pattern. A few edge cases come up often.
Bridge purchases with no rehab. With no renovation, there is no budget to count. Bridge purchases typically run up to 80% of purchase price, and the loan-to-cost tiers do not apply.
Cash-out and rate-and-term refinances. These are value-based, not cost-based. Hard money refinances typically go up to 65% of value, which is lower than purchase leverage.
Ground-up construction. Leverage is typically up to 90% of cost and 75% of completed value at three or more completed projects. The rehab-budget logic becomes a construction budget, and the draws follow building stages.
Lopsided deals. When the rehab budget is larger than the purchase price, the ARV cap usually binds first. The lender needs the appraised finished value to carry the loan.
As-is value below the purchase price. If the property appraises below what you paid, value-based tests applied to the acquisition portion can shrink the closing advance. Your cash at closing goes up even if the rehab budget is unchanged.
Property eligibility. The network funds non-owner-occupied residential property of one to four units, and ground-up construction up to ten units. Commercial, land, and owner-occupied property are not offered.
Loan sizes run up to $5,000,000, with larger loans by exception.
Reading Advertised Leverage
Advertised leverage mixes denominators, so decode each figure before comparing. A bare percentage could be a share of purchase price, of project cost, or of ARV. These are three different loans.
A good rule: if a cost-based figure is above 80%, make sure it says “of project cost” or “loan-to-cost.” Any ARV figure should say so. Market ranges differ widely. One investor-education survey puts typical loan-to-ARV caps in the 70% to 75% range, per Real Estate Skills. In Lendmire’s network, every fix-and-flip tier tops out at 75% of ARV.
The investor’s 70% rule is a different thing. It is a purchase-price filter: maximum offer equals ARV times 70%, minus repairs, as laid out by Fool.com. Landlord Studio calls it a quick filter, not a precise valuation. Baselane calls it a guideline rather than a strict law.
Lenders do not size loans with it. The binding cap for your loan could be the cost test or the ARV test. An investor who runs only the 70% rule can miss which one controls the cash they need.
A related mistake is treating ARV as purchase price plus rehab cost. ARV is market-based, built from comparable sales. Cost plus purchase is only a rough shortcut. Work done on a property may support a higher appraised value, depending on comps and underwriter review. It does not add value dollar for dollar.
The Exit Side
Your hard money loan must be paid off, and the next lender or buyer values the property differently than the first lender did. A refinance out is sized on appraised value, not on what you spent. A high-leverage hard money loan can leave little equity if the appraisal comes in light.
Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized. The coverage test on those loans compares rent to the full monthly obligation, so the finished property’s rent matters as much as its value. Lendmire brokers that path, and the complete DSCR loans guide walks through the long-term rental side. Seasoning and cost-basis rules for the exit are set by the specific program, so confirm them before you set the budget.
Questions to Ask Any Lender
Before you commit to a rehab loan, get plain answers to these:
- Which value do you use as the denominator: purchase price, as-is, or ARV?
- What is the cap on loan-to-cost, and what is the cap on loan-to-ARV?
- How much of the rehab budget is funded, and is it reimbursed or advanced?
- Who orders the ARV appraisal, and what happens if it comes in low?
- Does interest accrue on the drawn balance or the full commitment?
- What goes in a draw package, and what is the inspection process?
- How are overruns, change orders, and budget revisions handled?
- Does leverage change with my completed-project count?
Frequently Asked Questions
Is rehab money counted in the loan-to-value ratio?
Not in plain as-is loan-to-value. Rehab counts in loan-to-cost, where it is added to the purchase price, and in loan-to-ARV only through the projected finished value. The lender funds whichever cap is lower.
Does a hard money lender fund the full rehab budget at closing?
Usually not. The acquisition advance funds at closing and the approved rehab budget is held back. Up to 100% of the approved rehab budget can be released in draws against completed work, varying by lender, property, and experience.
What if the after-repair appraisal comes in low?
The value-based cap shrinks, and the loan can drop below what the cost test alone would allow. You then bring more cash, or you renegotiate the scope or price. Run the deal at a lower ARV before you commit.
Who pays for cost overruns?
You do, in most cases. Spending beyond the approved budget is generally not funded, and it reduces the equity cushion the lender relied on. Build a contingency into the plan before the budget is approved.
Is there a true 100% financing program for rehab deals?
No. Advertised 100% figures typically refer to the rehab budget, funded as reimbursement, not the purchase. The purchase portion is capped separately, and the top leverage tier is reserved for experienced investors.
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. Lendmire is a mortgage broker arranging financing through select lenders in its wholesale network, across 41 markets, including Washington, D.C.
Experienced and first-time investors alike get the most from the deal when they know which cap binds first, because that cap, not the headline percentage, sets the cash they bring to closing.
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).
The exit plan matters as much as the purchase price on short-term financing – 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. Stessa: ARV, after-repair value
2. Real Estate Skills: fix-and-flip loans
4. Landlord Studio: ARV in real estate
5. Baselane: calculating after-repair value
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 to Get Rehab Draws Released on a Hard Money Loan · How Rehab Scope Changes the Contingency a Hard Money Loan Needs · How a Bank Statement Lender Counts a Portfolio Hard Money Payoff
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.