How to use this checklist
The list is generic. It covers typical items on a short-term residential loan to an investor who is buying, renovating and selling or refinancing. Your written lending program sets the actual requirements, and your counsel decides the documents and any licensing or consumer-law questions.
The order matters for one reason: every lending limit is a percentage of a value or a cost, so you can't size the loan until those numbers are supported. Sizing is group six, not group one.
1. Property and valuation
Every limit in the sizing step multiplies a number from this section. If the as-is value or the ARV is weak, every later step inherits the error.
- Property type, unit count, location and condition fit the program, and the property will not be owner-occupied.
- Purchase contract reviewed: price, closing date, seller credits, and any assignment fee or double close.
- As-is value supported by an appraisal or evaluation of the property in its current condition. See as-is value.
- ARV supported by the appraisal's value upon completion or by recent comparable sales at the planned finish level. The calculators take ARV as an input; they don't estimate it.
- The ARV is tied to the same scope of work and budget the appraiser reviewed.
- Purchase price compared with the as-is value, with any large gap explained.
- Physical risks noted: flood zone, environmental or structural flags, open permits.
Bank rules offer a useful model. The Interagency Appraisal and Evaluation Guidelines (December 2010) say that when a loan finances renovation, an institution would generally ask the appraiser for the property's current "as is" market value and, as applicable, its "prospective market value upon completion." Private lenders aren't bound by those guidelines, but one report with both values gives the as-is and ARV limits a common source. The OCC's Commercial Real Estate Lending handbook (March 2022) defines as-is market value as the "market value of real property in its current physical condition, use, and zoning as of the appraisal's effective date."
For a purchase, the bank guidelines define value as "the lesser of the actual acquisition cost or the estimate of value." Some private lenders measure LTV the same way; the calculators use the as-is value you enter.
2. Budget and scope
The budget sets the rehab holdback, and the scope is what the ARV assumes. Check that the two describe the same project.
- Line-item budget that matches the scope of work, with quantities and unit costs where possible.
- Contingency: inside the rehab budget (and so inside LTC and the holdback) or held by the borrower.
- Contractor bids or contracts, with license and insurance where your program or state requires them.
- Permits needed, and who pulls them.
- Timeline for rehab plus sale or refinance fits inside the loan term, with room for delay.
- Rehab funding: the share of the budget the lender will fund through draws.
- Draw process agreed: number of draws, inspections, reimbursement terms and any retainage.
On draws, the OCC handbook describes banks releasing funds "commensurate with improvements made as of the date of the inspection." The calculators don't model retainage; enter each draw as the amount actually disbursed. The rehab holdback guide walks through a closing statement.
3. Borrower and experience
- Borrowing entity and every guarantor identified.
- Credit reports and background checks, as your program requires.
- Track record: completed projects of similar type, size and rehab scope, with addresses and outcomes.
- Liquidity covers cash to close, any rehab the lender doesn't fund, carrying costs and a reserve for overruns.
- Other real estate owned and outstanding loans listed.
- Business purpose of the loan documented.
The last item matters for consumer-lending rules. Regulation Z exempts credit extended primarily for a business purpose (12 CFR 1026.3(a)). The CFPB's official interpretation treats credit to acquire, improve or maintain non-owner-occupied rental property as business purpose; a flip that won't be rented depends on the primary-purpose analysis. Don't assume every flip loan is exempt. This is educational only; confirm your approach with counsel.
4. Exit strategy
- Exit named: sale after the rehab, or a refinance into longer-term debt.
- Sale exit: the ARV rests on recent sales, and homes at that price sell in a reasonable time in the submarket.
- Refinance exit: the takeout terms the borrower expects, and whether the finished property will qualify. The calculators don't model refinance or DSCR loans.
- The term covers rehab, marketing and closing time; extension terms are written down.
- Downside test: re-run the sizing with a lower ARV and a higher budget to see which limit binds and how leverage moves. The loan sizing calculator shows every cap at once.
5. Title, insurance and entity documents
- Preliminary title report or commitment: vesting, liens, judgments and easements reviewed.
- Lender's title policy ordered.
- Property insurance naming the lender as mortgagee or loss payee; builder's risk and flood coverage where the program or zone requires.
- Entity documents: formation documents, operating agreement, good standing, EIN, and authority to borrow and sign.
- Note, security instrument, loan agreement, guaranty and draw provisions prepared by counsel.
- Settlement estimate checked against the quote.
Recording, licensing and disclosure rules differ by state. Your program and counsel decide the document list.
6. Sizing, in order
Once the inputs are settled, sizing is mechanical. Run the steps in this order, because each one uses the result of the one before.
- Apply every limit. Turn each ratio into a dollar cap: As-Is LTV against the as-is value, LTC against purchase plus rehab, LTARV against the ARV, plus the financed project cost.
- Find the binding constraint. The lowest cap is the maximum loan and the binding constraint. If the borrower asked for less, use the request; if more, cut it back and record the excess.
- Split the loan. The funded rehab becomes the holdback; the remainder is the acquisition advance, and the borrower covers the gap to the price.
- Measure actual leverage. Divide the proposed loan back into each basis, so the file shows the deal's real ratios, not just the limits.
Worked example
The site's example deal: a $300,000 purchase, $400,000 as-is value, $100,000 rehab and $550,000 ARV, under illustrative limits of 70% As-Is LTV, 90% LTC and 70% LTARV with 100% rehab funding.
- As-Is LTVBINDING70% of as-is value $400,000
- $280,000
- LTC90% of total project cost $400,000
- $360,000
- LTARV70% of ARV $550,000
- $385,000
- Financed project costPurchase price + 100% of rehab budget
- $400,000
Each limit is rounded down to the whole dollar. The maximum loan is the lowest applicable limit.
Steps 1 and 2. The caps are $280,000 (As-Is LTV), $360,000 (LTC) and $385,000 (LTARV), against a financed project cost of $400,000. As-Is LTV binds, so the maximum loan is $280,000.
Step 3. The holdback is $100,000, the acquisition advance $180,000, and the borrower brings $120,000 of the purchase price before points and fees.
Step 4. Actual leverage is 70% As-Is LTV, 70% LTC and 50.91% LTARV.
Because the as-is limit binds, a higher ARV or a looser LTC limit wouldn't raise this loan; only a higher as-is value or as-is limit would. That's why the binding constraint belongs in the credit memo. This sizing applies the as-is limit to the whole loan, holdback included; some lenders apply it only to the initial advance. LTV vs LTC vs LTARV covers both conventions.
7. Pricing
- Points and their base. The calculators charge points on the gross loan, holdback included ($5,600.00 in the example).
- Rate and interest basis: full loan balance (Dutch) or funded balance (non-Dutch).
- For funded-balance interest: the day count (Actual/365 or Actual/360) and a dated draw schedule.
- Minimum interest months, if any.
- Lender fee and any other flat lender charges.
- Interest reserve: whether one is withheld and how much. It raises the borrower's cash to close.
- Borrower cash to close ($125,600.00 in the example) is affordable, with third-party costs on top.
- Gross lender revenue ($39,200.00 in the example: points plus $33,600.00 of scheduled interest) checked against your cost of funds and servicing, which the calculators don't include.
For a sense of where the market has priced, see typical hard money loan terms, with dated sources.
8. The quote
- A preliminary, non-binding quote with a clear disclaimer.
- The values, limits, binding constraint and cash figure on the quote match the file.
- The interest basis spelled out, so the borrower knows whether undrawn funds accrue interest.
- Terms the calculators don't compute listed separately: extension, exit fee, draw fees, prepayment, guaranty.
- Conditions and the date the quote expires.
- A new quote whenever the appraisal or the budget changes.
The hard money term sheet guide shows a complete sample quote for the deal above, line by line.
Questions
What do hard money lenders look at when underwriting?
The property first: its as-is value, the after-repair value and the rehab budget, because every lending limit is a percentage of one of them. Then the borrower's experience and liquidity, the exit plan, and title, insurance and entity documents. What a given lender requires is set by its program.
How do you underwrite a fix-and-flip loan, step by step?
Support the as-is value and ARV, review the budget against the scope, check the borrower and the exit, and collect title, insurance and entity documents. Then size the loan: turn each limit into a dollar cap, take the lowest as the maximum loan, split it into holdback and acquisition advance, and measure the actual leverage. Price it and issue a non-binding quote.
What documents does a hard money lender typically ask for?
Typical items include the purchase contract, the rehab budget and scope, contractor bids, a track record of past projects, bank statements showing liquidity, entity documents, insurance, and title. Your program and counsel decide the actual list.
Should the as-is limit apply to the whole loan or only the initial advance?
Both conventions exist. The calculators and the iPhone app apply As-Is LTV to the total loan, holdback included. Some lenders apply their as-is limit only to the amount funded at closing, which can allow a larger total loan on the same deal. State which one your program uses.
Does a private lender need an appraisal?
Regulated banks follow federal appraisal rules and the Interagency Appraisal and Evaluation Guidelines. Private lenders set their own valuation policy, which may call for an appraisal with both as-is and as-completed values, a broker opinion or another evaluation. Your program and counsel decide.
Are fix-and-flip loans exempt from Regulation Z?
Not automatically. Regulation Z exempts credit primarily for a business purpose, and the official interpretation treats credit for non-owner-occupied rental property as business purpose. A flip that won't be rented depends on the primary-purpose analysis. This is educational only; confirm with counsel.
Sources
- Interagency Appraisal and Evaluation Guidelines, 75 FR 77450, December 10, 2010
- Office of the Comptroller of the Currency, Comptroller's Handbook: Commercial Real Estate Lending, version 2.0, March 2022
- 12 CFR Part 365, Subpart A, Appendix A, Interagency Guidelines for Real Estate Lending Policies (FDIC), via Cornell LII
- CFPB, Regulation Z, 12 CFR 1026.3, Exempt transactions
- CFPB, Regulation Z official interpretation of § 1026.3