The Quick Read: A hard money lender pays only for the scope and budget it approved at closing. Any cost above a line item, and any new work, needs written lender approval before the work happens. The extra cash usually comes from contingency first, then from your own pocket. A change order moves money or scope. It does not automatically raise the loan.
- Draws are reimbursements. You or your contractor fund the work first, then the lender releases money against completed, inspected work.
- Approval comes before work. Work done under a verbal or unapproved change order may go unfunded.
- Contingency is the first line of defense. Once it is gone, the gap comes from other budget lines, more of your equity, or a loan modification.
- The original loan size is the ceiling. Raising it is a separate underwriting decision, not a paperwork formality.
- Rules live in your loan documents. No statute sets them, so every lender’s draw agreement is a little different.
Key Terms Defined
- Draw: a payment released from the held-back rehab budget after the lender confirms completed work.
- Change order: a written adjustment to the contract that describes the change, any added time, and the cost.
- Cost overrun: spending above the budgeted amount for a line item or the whole project.
- Reallocation: moving money between budget lines without increasing the total loan.
- Loan modification: a formal change to the loan amount or terms, which needs fresh underwriting.
- Contingency: money set aside in the budget for surprises, often sized as a percentage of construction cost.
- Lien waiver: a document in which a contractor gives up lien rights for the amount paid.
Where Draws Fit (and Where DSCR Comes In)
Draws belong to short-term rehab loans, not to long-term rental loans. A DSCR loan, which qualifies primarily on property-level rental income covering the payment, subject to lender guidelines, funds in one piece with no draw schedule. The complete DSCR loans guide covers that product in full.
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.
The draw schedule shows up earlier in the life of a deal. On a fix-and-flip or bridge loan, the lender holds back the rehab budget and releases it in stages. Across the wholesale network Lendmire places files with, up to 100% of the rehab budget can fund in draws against completed work. That is a rehab-budget figure, not a purchase leverage figure.
Purchase leverage works differently. Fix-and-flip leverage typically runs up to 93% of project cost at five or more completed projects, 90% of project cost at two or more, and 85% with fewer than two. Every tier is capped at 75% of after-repair value. These figures vary by lender, property, and experience, and nothing here is a commitment to lend.
Those caps matter for overruns. The loan was sized against a budget and a finished value. Extra cost does not automatically come with extra loan.
Which Path Are You On?
Most overruns land on one of four paths. The cause and size of the problem sort them, and the lender’s own documents set the exact thresholds.
| Situation | Typical path | Lender approval? |
|---|---|---|
| Small savings on one line cover a small miss on another | Reallocation at the next draw | Often informal |
| Material scope change or large line shift | Written change order | Yes, in writing |
| Contingency is spent and costs keep rising | More cash, scope cut, or modification | Yes |
| Structural surprise (foundation, sewer) | Modification or a smaller scope | Yes, with re-underwriting |
The size threshold that separates informal from formal varies by lender. Read your draw agreement before you assume.
What the Draw Schedule Looks Like Before and After a Change
An approved change order rewrites the remaining draws. The total can stay the same while the timing and contents shift.
Take a modeled example, with every input an assumption. A rehab budget funds in three draws. A structural repair turns up after demolition, and the lender approves a reallocation: contingency plus savings on finishes cover the new line. The figures below are percentages of the original rehab budget.
| Draw | Before the change | After the approved change |
|---|---|---|
| Draw 1: demo, framing, rough-in | 25% | 25% |
| Draw 2: mechanicals, drywall, new structural line | 35% | 43% |
| Draw 3: finishes and contingency | 40% | 32% |
| Total | 100% | 100% |
The loan did not grow. Eight points moved from contingency and finishes into the structural repair. If the repair had cost more than those two sources could cover, the extra would have been your cash or a modification request.
Who Pays, and What Limits Any Increase
You pay first. Funding is capped at the budgeted line, and a change order or budget amendment is needed to exceed it. Built’s construction contingency guide says that once contingency is gone, extra costs must come from other line items, more owner equity, or a loan modification. It adds that the owner may need to ask the lender for a budget increase, delay non-critical scope, or negotiate the change order down.
The funding order, in practice, runs like this:
1. Contingency in the approved budget.
2. Reallocation from lines with real savings.
3. Your own cash.
4. A lender-approved modification, if the lender agrees and the original loan cap leaves room.
The fourth step is lender discretion, not an entitlement. Lenders look at the original loan-to-cost and after-repair-value limits. If the loan already sits near them, a modification may be unavailable.
The deeper cash question is what you do when you front every draw.
The Change-Order Process, Step by Step
The sequence is the same on most files, though the forms differ.
1. Spot the issue. The contractor or inspector flags new scope, a hidden condition, or a material substitution.
2. Price it in writing. The contractor writes up the adjustment, the added time, and the cost. Rabbet describes a change order as an addendum to the original contract.
3. Find the money. Decide whether contingency, a reallocation, or your cash covers it.
4. Submit it to the lender before the work starts. Include the change order with the next draw package. Northspyre says change orders must be in the draw request, each with a detailed description of the added cost.
5. Wait for written approval. The contractor’s price is not the lender’s approval.
6. Do the work and request the draw. The inspector verifies progress against the updated scope.
7. Update the lien waivers. Conditional waivers go in with the invoice, and unconditional waivers replace them after payment.
What to Send the Lender
A clean package gets read once. A messy one gets sent back. Most lenders want some version of the following.
| Item | What it should show |
|---|---|
| Written change order | Scope, cost, added time, signatures |
| Pricing backup | Bid or invoice behind the number |
| Updated budget | Which lines moved and the new totals |
| Funding source | Contingency, reallocation, or your cash |
| Photos or inspection note | Why the change is needed |
| Lien waivers | Limited to the amount actually paid |
On waivers, Relay advises keeping a waiver limited to the amount paid in the draw. Do not fold a pending change order into it.
Approved First or Done First?
Approved first is the only safe order. Smartbuilder360 says work outside the original contract or draw schedule has not been underwritten. A lender won’t release funds against it until the change order is formally approved and reflected in the loan documents. It also says only the lender’s formal approval counts, and finished work does not override a rule violation.
That has three practical consequences.
- Your contractor’s sign-off is not enough. The inspector’s note is not enough either.
- A held draw stalls everyone. While a change is in review, the pending draw may sit. Tell your contractor early so payroll and subs don’t become your problem.
- Verbal changes carry risk. Work done on one may go unfunded, and you absorb the cost.
If the work is urgent, such as an active leak or a safety issue, call the lender before the crew starts. Ask what they will accept in writing, even if it is an email.
Edge Cases Where the General Rule Bends
Hard costs versus soft costs. Built’s lender guide says hard costs are usually funded after inspection verifies progress. Soft costs are usually funded on invoice without a site visit. It also says contingency follows the type of cost it covers, and drawing it against the wrong type can hide a budget problem.
Structural surprises. A bad foundation or a failed sewer line rarely fits a simple reallocation. It may need a budget or loan modification and re-underwriting. Your options are more cash, a smaller scope, or a modified loan, depending on how much room is left under the original limits.
Underruns. Savings do not always come back to you as cash. Many lenders let you reallocate them to other lines, and some simply leave the money unreleased. Check how your agreement treats unspent funds.
Contingency as upgrade money. Contingency is for necessities. A discretionary upgrade, like nicer countertops, is a scope change and needs its own approval.
Draw count and fees. Programs differ on how many draws they allow and what each costs. Every extra draw adds friction, so some investors keep the count low. Ask for the fee schedule before closing.
Different contracts, different answers. Some lenders pay for change orders and others won’t. Your own agreement is the only reliable answer.
The True Cost of a Change
A change order’s price tag is only the first number. The full cost has three parts.
- The work itself. This is the figure on the change order.
- Carry. Hard money loans are interest-only, with terms commonly running six to eighteen months. Every week the project slips adds interest. Built notes that contingency disputes forcing draw resubmissions add interest cost on top of the delay.
- Exit risk. A longer rehab pushes your sale or refinance date and can eat the equity you counted on at the exit.
That last point matters for investors who plan to hold. Many investors refinance out of hard money into long-term DSCR investor loans once the property is stabilized, and Lendmire brokers that path. An overrun can delay that refinance and reduce the equity available when it arrives.
Tax treatment varies; consult a qualified professional.
Preventing Overruns Before Closing
Most of the damage is avoidable at the budgeting stage. Three habits help.
Scope hidden systems. Plumbing, electrical, roof, and foundation drive most nasty surprises. Get a contractor or inspector to look before you close, not after demolition.
Size contingency against real risks. Rets AI argues that a round 5-10% placeholder is not sized against actual risks. That commentary targets development projects, but the lesson carries over. An older house with unopened walls deserves more cushion than a light cosmetic job.
Keep spare cash outside the loan. Reserve your own money for gaps.
Leverage tiers, draw limits, and approval steps all vary by lender, property, and experience. Read the draw agreement and any construction rider line by line before you sign.
Frequently Asked Questions
Does a change order increase my hard money loan?
Usually not. A change order often just moves money between budget lines. Raising the loan amount is a separate modification that needs underwriting, and the original loan-to-cost and after-repair-value limits bound it.
Who pays when a rehab goes over budget?
You do, in most flip structures, unless your contract says otherwise. Contingency absorbs the first dollars, then reallocations, then your own cash. A lender may approve more funding, but that is its call.
Can I start work before the lender approves the change?
You can, but you carry the risk that the lender won’t fund it. Unapproved work sits outside what the lender underwrote. Get written approval first, even for urgent items, whenever you can.
What happens to my next draw while a change order is under review?
It may be held until the lender reconciles the budget. Submit the change order with the draw package, keep lien waivers limited to the amount paid, and tell your contractor about the hold.
Can a change order reduce the budget?
Yes. Dropping scope is also a change, and it should be documented the same way. Savings may be reallocated or left unreleased, depending on the draw agreement.
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. Programs are offered through select lenders in its wholesale network across 41 markets, including Washington, D.C., and nothing here is a commitment to lend.
About Lendmire
As a non-QM mortgage broker (NMLS# 2371349), Lendmire facilitates DSCR investor loans across 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed around property-level rental income instead of personal income documentation, subject to lender guidelines, serving LLC-structured portfolios and self-employed borrowers who don’t fit conventional boxes. A two-time Scotsman Guide Top Mortgage Workplace (2025, 2026).
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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. Built – Construction contingency
2. Rabbet – What Is a Draw Request
3. Northspyre – Draw request process
4. Relay – Lien waivers for general contractors
5. Smartbuilder360 – Why construction draw requests get rejected
6. Built – Hard costs and soft costs in construction
7. Rets AI – Construction cost overruns and contingency
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Keeping Seller Financing vs Refinancing Into a Hard Money Loan · How to Refinance a Hard Money Flip Into a DSCR Loan Early · Can You Get Hard Money to Buy at Auction With an Inherited Tenant?
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.