Ten Red Flags Lenders Spot in Rehab Budgets
A rehab budget is the plan a lender funds. These are the ten problems that most often slow approvals or shrink loans, and how to fix each one.
Short answer
Lenders flag rehab budgets that are vague, missing contingency, out of line with the after-repair value or the property's condition, or silent on permits and timing. A strong budget is specific line by line, priced from real bids, tied to the scope of work and realistic about time.
Key points
- Specific line items beat lump sums.
- Include contingency, permits and a timeline.
- Keep the budget in line with the ARV.
The ten red flags
- Lump sums. "Kitchen: $30,000" tells an inspector nothing. Break it into cabinets, counters, appliances and labor.
- No contingency. First projects especially should carry 10 to 15%.
- Over-improving. Finishes above what the neighborhood's sales support.
- Under-priced systems. Roof, HVAC, electrical and plumbing priced from hope rather than inspection.
- No permits line. Permit costs and timing are real.
- No timeline. Lenders want phases and dates, which map to draws.
- A mismatched scope. The budget includes work the scope doesn't, or the reverse.
- Missing soft costs. Dumpsters, utilities, insurance and cleaning add up.
- No bid behind the numbers. Lenders trust contractor bids over estimates.
- A budget that doesn't fit the ARV. If the deal only works with a perfect sale, the lender will notice; see after-repair value.
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What a strong budget looks like
Line items by room and system, priced from bids, grouped into phases that match the draw schedule, with contingency and soft costs called out. For how those phases turn into funding, see how rehab draws work.
Frequently asked questions
How detailed should a rehab budget be for a lender?
Detailed enough for an inspector to verify each item: line items by room or system, with quantities or bid amounts, grouped into phases.
How much contingency should I include?
10 to 15% of the rehab budget is common, and first-time flippers should lean toward the high end.
Can a lender cut my rehab budget?
Lenders can limit how much of the budget they'll fund if it looks unrealistic or doesn't fit the after-repair value.
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