Writing a rehab scope of work a lender will fund

A rehab loan is underwritten on three numbers that have to agree: what the house costs, what the work costs, and what the house will be worth afterwards. The scope of work ties them together. A clear scope gets a fast answer and draws that fund without argument. A vague one gets questions, a lower loan amount, or a no.

What a fundable scope of work looks like

Line items, not lump sums. “Kitchen: $X” tells the lender nothing. Break it down.

• Organise the scope by room or by trade, whichever you and your contractor actually work from.
• Give every line a quantity and a unit: square feet of flooring, linear feet of cabinets, number of windows, squares of roof.
• Give every line a cost, and say whether it covers labor, materials or both.
• Name the finish level. Luxury vinyl plank or hardwood, laminate or quartz counters. The finish level has to match the comparable sales behind your after-repair value.

The systems separately. Roof, HVAC, electrical, plumbing, and anything structural or foundation related should each be a line of their own. They are the expensive items that go wrong most often, and the ones a lender looks at first.

Permits. Note which lines need a permit. Structural, electrical, plumbing and mechanical work usually does. An open permit that never gets a final inspection can hold up a sale or a refinance later.

A contingency. Every rehab finds something. A budget with no contingency tells the lender you have not done this before. Many experienced investors carry 10 to 15 percent, and more on an older house.

Soft costs. Permits and fees, dumpsters, utilities during the rehab, insurance and your holding costs are real money. If they are not in the budget, they will come out of your margin.

Tie the draw schedule to the scope

Most rehab loans hold the renovation money back and release it in draws as the work gets done. The draw schedule should follow the scope line by line.

• Draws follow completed work. Before each draw, the lender or its inspector visits and checks what percentage of each line is actually done. Money goes out against verified work, not against a request.
• Plan your cash for the first phase. Demolition and the early trades are usually paid before the first draw. Know how you will cover them.
• Keep lien waivers. Collect a waiver from each contractor and supplier as you pay them. A lender will often want the previous draw’s waivers before it funds the next one, because an unpaid subcontractor can file a lien against the property.
• Stay in balance. At every draw, the money left in the holdback has to cover the work left to do. If the budget has grown, expect to put in the difference yourself before the next draw.
• Plan for retainage. Some lenders keep back part of each draw until the job is finished.

Make the after-repair value add up

The after-repair value, or ARV, should come from recent sales of houses that are genuinely comparable to yours as renovated.

• Similar size, age and bedroom count, close by and sold recently.
• Finished to the level your scope describes, no higher.
• Adjusted honestly for real differences like a garage, a basement or the lot.

Expect the lender to check your ARV against its own valuation. The most common mismatch we see is a scope that budgets builder-grade finishes and an ARV built from fully renovated, higher-end sales.

Mistakes that slow down funding

• Lump sums, or a “miscellaneous” line carrying real money
• No line for the roof or HVAC on a house where either is past its life
• Pre-1978 houses with no plan for lead-safe work practices during demolition
• Unlicensed contractors on work that needs a license
• A timeline that does not match the scope, such as a full gut in six weeks
• Change orders made in the field and never written down

What to send

Send the contract, the purchase price, the line-item scope and budget, your contractor’s bids if you have them, the comparables behind your ARV, and your exit plan: sell or refinance, and when. Missing pieces are fine. Send what you have and we will ask for the rest.

We have renovated and held houses in this market ourselves, so when we read your scope we are reading numbers we have priced ourselves.