A rehab budget lenders approve is line-item, priced from contractor bids, tied to the scope and draw schedule, and carries a 10–15% contingency.
A rehab budget that lenders approve is line-item by trade, priced from real bids, matched to a written scope of work and a draw schedule, and carries a visible 10–15% contingency. It must also support the after-repair value (ARV) you claim: the finishes in the budget have to match the comps in your valuation.
This guide walks through building that budget step by step. For what underwriters test once they have it, read what lenders look for in a rehab budget.
Key takeaways
- Start from the exit: the ARV comps decide the finish level, and the finish level decides the budget.
- Price by trade and by room, with quantities, from at least one real bid for each major trade.
- Add permits, lead-safe work on pre-1978 homes, dumpsters and utilities — the lines first-time investors forget.
- Show contingency as its own line, typically 10–15% of hard costs.
- Group lines into draw phases so the lender's inspector can verify each one.
Step 1: Which comps set the finish level?
Pull three to five recent sales of renovated homes near the property with similar size, beds and baths. Note what they have — quartz or laminate, new or original windows, a primary suite or not. Your budget should buy exactly that level. Overbuilding wastes money; underbuilding means the appraiser won't hit your ARV. See how to calculate ARV.
Step 2: Write the scope room by room
Walk the property with your contractor and write what will be done in each space: "Kitchen: remove cabinets, install 22 linear feet of shaker cabinets, quartz counters, new sink and faucet, LVP floor 180 sq ft." The scope is the document the inspector checks during draws, so every budget line must point to a scope item. Our guide to scope-of-work detail shows the standard.
Step 3: Price each line by trade
| Category | Typical lines |
|---|---|
| Site and demolition | Dumpsters, debris haul, selective demo, site protection |
| Structure and envelope | Foundation repair, framing, roof, gutters, siding, windows, exterior doors |
| Systems (MEP) | Electrical panel and rewiring, plumbing supply and drains, water heater, HVAC |
| Interior | Drywall, insulation, paint, flooring, trim, interior doors |
| Kitchen and baths | Cabinets, counters, tile, fixtures, appliances |
| Exterior and landscaping | Paint, concrete, fencing, grading, curb appeal |
| Soft costs | Permits, plans, engineering, inspections, lead testing |
| Contingency | 10–15% of hard costs |
Price the big trades — roof, HVAC, electrical, plumbing, foundation — from written contractor quotes. Use supplier pricing for materials you buy yourself. Lenders compare your numbers with what they see on similar projects; a $4,000 kitchen in a market where comps have new quartz kitchens is a red flag, not a savings.
Step 4: Add the lines people forget
- Permits and inspections. Electrical, plumbing, mechanical and structural work usually needs permits. Budget the fees and the time. See permits and timelines.
- Lead-safe work. On homes built before 1978, the U.S. EPA's Renovation, Repair and Painting (RRP) rule requires firms disturbing painted surfaces to be certified and to follow lead-safe practices. That adds labor, containment and cleanup cost.
- Utilities and security during the project, plus a final clean and staging if you're selling.
- Change orders. They happen; the contingency pays for them. See change orders and cost overruns.
Step 5: How much contingency is enough?
Many investors carry 10–15% of hard costs. Go higher on homes built before 1960, homes with visible water damage, or where you haven't opened walls. Keep contingency as its own line — lenders see a buried cushion as padding and a missing one as inexperience.
Step 6: Map the budget to a draw schedule
Group lines into phases a third-party inspector can verify: demo and rough-in, systems, drywall and close-up, finishes, punch list. Rehab funds are released after each phase is inspected, so your schedule should leave you enough cash or credit to front the first phase. Read how hard money draw schedules work.
What does the lender do with the budget?
The budget sets the rehab portion of the loan and is checked against ARV. On an Ambition Lending fix and flip loan we fund up to 90% of the purchase price and up to 100% of the rehab, with the total loan capped at 75% of ARV. Example: a $200,000 purchase, $60,000 rehab and $360,000 ARV gives $180,000 + $60,000 = $240,000, which is under 75% of ARV ($270,000), so the full rehab is fundable. If the ARV were $300,000, the cap would be $225,000 and you'd bring the $15,000 difference. Check yours in the hard money loan calculator and the fix and flip profit calculator.
Rehab budget checklist before you submit
- Scope of work, room by room, matching every budget line
- Line-item budget by trade with quantities
- Bids for major trades
- Permit plan and lead-safe plan if built before 1978
- Separate contingency line
- Draw phases and an estimated timeline
- Renovated comps that justify the finish level and ARV
Frequently asked questions
How detailed does a rehab budget need to be for a hard money lender?
Line-item by trade and room, with quantities and costs, matched to a written scope of work.
How much contingency should a rehab budget include?
Many investors carry 10–15% of hard costs, more on older homes. Show it as its own line.
Will a lender fund 100% of my rehab budget?
Ambition Lending funds up to 100% of the rehab plus up to 90% of the purchase, capped at 75% of ARV, released in draws after inspections.
Do I need contractor bids before applying?
Not always for a term sheet, but bids for major trades make the budget credible and speed approval.
What rehab budget mistakes get loans cut?
Budgets too low for the scope, missing permits or lead-safe costs, no contingency, and an ARV that assumes finishes the budget doesn't pay for.
