If you’ve spent any time researching private money or hard money loans for fix-and-flip projects, you’ve probably seen lenders advertise “100% rehab financing.”
At first glance, that sounds pretty straightforward: the lender will cover the entire cost of your renovation.
But there’s an important distinction that investors should understand.
100% rehab financing generally means the lender is financing 100% of the approved renovation budget—not that the entire rehab budget is handed to you at closing.
Understanding how those funds are structured, held, and released can make a big difference in how you plan your project.
How 100% Rehab Financing Typically Works
Let’s say you’re purchasing a property for $250,000 and expect to spend $100,000 on renovations.
Your total project cost would be $350,000 before other expenses such as interest, closing costs, insurance, taxes, and utilities.
If your lender offers 100% financing on the approved $100,000 rehab budget, the loan might be structured to include:
- $250,000 toward the purchase
- $100,000 allocated for approved renovations
- $350,000 total loan commitment, subject to the lender’s underwriting criteria and loan-to-value/loan-to-cost limits
The important part is that the $100,000 renovation portion is typically held back by the lender and released through draws as work is completed.
You don’t necessarily receive the full $100,000 at closing.
Why Are Rehab Funds Held Back?
Holding rehab funds back protects both the borrower and the lender.
Rather than borrowing the entire renovation budget upfront and paying interest on money that hasn’t been used yet, the funds can be released as the project progresses.
For example, a project might look something like:
Closing: Purchase funds are disbursed and the rehab budget is established.
Phase 1: Initial renovation work is completed and a draw is requested.
Phase 2: Additional work is completed and another draw is requested.
Phase 3: The project continues through completion, with remaining funds released as approved work is completed.
The exact process varies by lender, but the basic concept is the same: rehab financing is deployed throughout the project rather than all at once.
So How Much Cash Do You Actually Need?
This is where investors sometimes misunderstand the phrase “100% rehab financing.”
Even if a lender is financing 100% of your approved renovation budget, you may still need cash available for the project.
For example, you may need funds for:
- Your required equity contribution
- Closing costs and lender fees
- Insurance and taxes
- Initial contractor expenses
- Materials or other costs incurred before the first draw
- Unexpected project expenses outside the approved scope
That’s why it’s important to understand how your lender’s draw process works before you close.
A renovation budget can look perfectly adequate on paper, but the timing of those funds matters just as much as the total amount.
Draw Speed Matters
For an investor, the difference between having $100,000 available for a project and being able to access that $100,000 efficiently as the work progresses can be significant.
Contractors don’t necessarily operate on the same timeline as your lender.
A contractor may need to be paid when a particular stage of work is completed, while your lender may have specific requirements for requesting and approving a draw.
Before closing, ask:
How do I request a draw?
What documentation is required?
How quickly are draws typically funded?
Is there a minimum draw amount?
Are inspections required?
What happens if the scope of work changes?
These questions can help you avoid surprises once the project is underway.
“100% Rehab” Doesn’t Mean “Unlimited Rehab”
Another important distinction: 100% financing applies to the approved rehab budget.
If your lender approves $100,000 for renovations and you later decide the project actually needs $125,000, that doesn’t automatically mean the additional $25,000 will be financed.
Changes to the scope of work may require additional review and approval, and there may be limits based on the property’s value, the overall loan amount, and the borrower’s financial position.
That’s why a realistic scope and detailed renovation budget are so important before closing.
The Bottom Line
“100% rehab financing” can be a valuable tool for investors who want to preserve their available cash while completing a renovation.
But don’t stop at asking “Does the lender finance 100% of the rehab?”
Ask how that financing actually works.
Understand:
- How much is funded at closing
- How much is held back
- How draws are requested
- What is required to receive a draw
- How quickly funds are released
- What happens if the project changes
- How much cash you should have available throughout the project
Because when you’re flipping a property, access to capital is just as important as the amount of capital available.
At Low Tide Private Lending, we work with investors on residential fix-and-flip and renovation projects throughout our lending markets, including structuring rehab financing and draws around the project.
If you’re evaluating a project and want to understand how the financing could be structured, let’s talk before you make the offer.