Guide
ARV and how it gets decided
Your entire loan is sized off a number that someone else calculates. Here is how it is produced, why it comes in low, and what you can do about it.
After-repair value is the most consequential number in the transaction and the one you have the least control over. The lender's 70% cap runs off it, your maximum offer runs off it, and your refinance exit runs off a later version of it.
Who produces it
- Full appraisal with ARV opinion
- A licensed appraiser values the property as-is and as-completed against your scope of work. $450-$1,200, a week or two, and the most defensible.
- Broker price opinion (BPO)
- A licensed agent's opinion. Cheaper and faster, more variable. Common on smaller loans.
- Automated valuation model (AVM)
- An algorithm. Used as a screen, rarely as the basis for funding. Notoriously poor on properties in unusual condition - which is every property in this product.
- The lender's internal view
- Some balance-sheet lenders simply have an opinion, informed by their own local history. Fast, and completely opaque.
Why ARVs come in low
- The comparables do not support it. Investors anchor on listing prices and on the one outlier that sold high. Appraisers use closed sales, adjusted, usually within six months and a tight radius.
- The scope does not match the value claimed. You cannot get luxury-finish comparables with a mid-grade scope. The appraiser is valuing what your budget actually builds.
- Over-improvement. Value is capped by the neighbourhood. The best house on the street does not appraise at the sum of its finishes.
- Condition adjustments on the comparables. If the only recent sales were also renovated, fine. If they were tired, the adjustment is a judgement call and it will not go your way.
What you can legitimately do
- Provide the comparables yourself, with the appraisal order. Closed sales, addresses, dates, and a sentence on why each is comparable. This is normal and appropriate.
- Provide the full scope of work, with finish levels specified. An appraiser valuing "$60,000 of renovation" has to guess; one valuing a itemised scope does not.
- Meet the appraiser at the property and walk the scope. Not to influence the number - to make sure they understand what will exist when it is finished.
- Ask about a reconsideration of value if it comes in low and you have comparables that were missed. Most lenders have a process; it needs new evidence, not an objection.
Underwrite the low case
Questions people actually ask
What are the qualifications for a hard money loan?
In the order the lender actually cares about: the deal (purchase price against as-is value and after-repair value), your cash into the transaction, your exit, your track record, and last and least, your credit.
Practically, most lenders want to see 80%-90% of purchase price from them and the rest from you, a rehab budget that has been scoped rather than guessed, a credit score somewhere north of 620-660 as a screen rather than a pricing input, an entity to take title, and reserves beyond your down payment. First-timers get less leverage and worse pricing, not a refusal.
How do I qualify for a hard money loan?
Bring a deal that works on the lender's numbers, not yours. That means a defensible ARV, a rehab scope with line items rather than a round number, cash to close that you can document, and a specific exit with a date. Everything else - credit, income, experience - moves your pricing but rarely decides the answer on its own.
Are hard money loans hard to get?
Comparatively, no - which is the point of the product. Approval turns on the collateral, so a borrower who would be declined instantly by a bank can be approved in days. What is hard is getting good terms: the gap between what an experienced investor with ten flips is quoted and what a first-timer is quoted is large, and it shows up in leverage and points rather than in a yes or no.
How difficult is it to get a hard money loan?
Days rather than weeks, and the paperwork is a fraction of a conventional file. The friction is in the valuation and the draw process, not the approval.
How hard is it to get a hard money loan?
See above. The realistic constraint for most first-time borrowers is not approval, it is cash to close - see how much cash you actually need.
What are the requirements for getting a hard money loan?
A property under contract or owned, an as-is value and an ARV the lender can support, a scoped rehab budget, documented cash to close, an entity in most cases, hazard insurance naming the lender, title, and a stated exit. Income documentation is usually light or absent; that is the trade you are making.
What is the 70% rule for hard money loans?
The rule of thumb that you should not have more than 70% of a property's after-repair value tied up in it - so your maximum offer is (ARV x 0.70) minus the rehab budget. On a $400,000 ARV with $60,000 of rehab, that is $220,000.
Two things worth separating, because they get conflated constantly. As a lender cap, 70% of ARV is a real underwriting limit most hard money lenders apply, and it is the binding constraint on how much they will lend you. As an investor rule, the 30% gap is meant to absorb your holding costs, selling costs, financing costs and profit - all four - which on a leveraged deal it frequently does not. The rule is a screening filter, not an underwriting model. Run the real numbers.
What is the 2% rule for refinancing?
There is no established 2% rule for refinancing; the questioner is probably reaching for the old 2% rent-to-price rule of thumb (monthly rent of at least 2% of purchase price), which has been unattainable in most US markets for years. For a refinance exit the number that actually governs is DSCR - the ratio of rental income to the new loan's payment, taxes, insurance and HOA. Most rental lenders want 1.20 or better. Check yours.