Short version: the depth of your rehab changes almost everything about your fix and flip loan. A cosmetic refresh and a full gut on the same house get sized differently, drawn differently, appraised differently, and priced differently. Knowing which bucket your project falls into before you apply keeps your leverage high and your surprises low. FMC Capital places fix and flip loans for investors. Call 412-990-2941 or request a quote.
Why lenders care how deep you are going
Every rehab loan is really two questions asked at once. How much is the house worth today, and how much will it be worth once you are done. The distance between those two numbers is your project, and the size of that distance is what separates a cosmetic flip from a full gut. Lenders read that distance the same way you do, because it tells them how much money is going into the walls, how long the work will take, and how much can go wrong before the deal stops making sense.
A cosmetic project moves a house a short distance: paint, flooring, fixtures, a kitchen and bath refresh, maybe some landscaping. A full gut moves it a long distance: down to the studs, new systems, new layout, sometimes an addition. Same loan family, very different risk, and your terms follow the risk. If you want the full picture of what a rehab loan actually costs from application to payoff, start with our breakdown of fix and flip closing costs, then come back here to see how scope moves those numbers.
The two buckets, defined the way an underwriter sees them
There is no universal legal line between cosmetic and gut, but underwriters tend to sort projects by the rehab budget as a percentage of the as-is value and by whether the major systems are being touched.
- Cosmetic or light rehab. Rehab budget is usually under about 25 percent of the purchase price, and you are not moving walls, not replacing the roof, not redoing electrical or plumbing or HVAC. Think a dated but sound house that needs to look current.
- Moderate rehab. Rehab budget in the 25 to 50 percent range, with one or two systems in play, a kitchen relocation, or a bath addition. The house is structurally fine but functionally tired.
- Full gut or heavy rehab. Rehab budget above roughly 50 percent of purchase, or any project taken to the studs with new systems, new layout, or square footage added. The house is being rebuilt from the inside out.
Those percentages are guidelines, not hard rules, and they vary by lender and market. But they explain why two investors with the same purchase price can get two very different term sheets. The one doing a gut is asking the lender to fund more, wait longer, and trust a bigger jump in value.
How scope changes each part of the loan
Leverage
On a cosmetic deal, the finished value is easy to trust because you are not changing the fundamental house, so lenders are comfortable at the top of their leverage: often up to 90 percent of purchase and up to 100 percent of a modest rehab budget, capped at around 70 to 75 percent of after-repair value. On a full gut, the after-repair value carries far more of the loan, so the ARV cap becomes the binding constraint and your day-one cash usually goes up even if the cost-based leverage looks the same on paper.
The draw schedule
Cosmetic rehabs often run on two or three draws because there are only a handful of milestones. A gut can run on five, six, or more draws tied to demo, rough-in, insulation, drywall, and finishes, each released after an inspection. More draws means more inspection fees and more timing risk, which is exactly why understanding how the rehab holdback and initial advance work matters more on a gut than on a refresh.
The appraisal
On a cosmetic flip the appraiser can lean on very comparable sales, because the finished product looks like the neighbors. On a gut, especially one that adds square footage or reconfigures the floor plan, the finished house may be different enough from the comps that the appraised ARV comes back conservative. That is the single most common way a gut deal gets tighter than the investor expected, and it is worth reading how ARV and as-is value are actually set before you lock your budget.
Term and rate
A refresh might genuinely be done in 60 to 90 days. A gut is a six to nine month project once permits and inspections are counted, so you want a longer term and you should assume you are carrying interest for longer. Pricing tends to move a little with complexity as well, since the lender is exposed for more time and more dollars.
Contingency
The deeper the rehab, the more likely you are to find something behind a wall. Full guts should always carry a fatter cushion, which is why we walk every heavy-rehab client through contingency reserves as a real line item rather than an afterthought.
A side-by-side deal example
Take one house, a purchase price of 200,000 dollars, and run it two ways.
Cosmetic version. Rehab budget of 40,000 dollars, which is 20 percent of purchase. After-repair value of 300,000 dollars. At 90 percent of purchase you borrow 180,000 dollars toward the buy and finance the full 40,000 dollar rehab through draws, so your total loan is 220,000 dollars against a 300,000 dollar ARV, a comfortable 73 percent. Your cash into the deal is roughly the 20,000 dollar purchase gap plus closing costs. The work takes about ten weeks.
Full gut version. Same 200,000 dollar house, but now a 130,000 dollar rehab, which is 65 percent of purchase, and an after-repair value of 400,000 dollars because you added a bedroom and a second bath. The cost side would let you borrow 180,000 dollars toward purchase plus the 130,000 dollar rehab for 310,000 dollars total. But the ARV cap at 70 percent of 400,000 dollars is 280,000 dollars, so the loan is held to 280,000 dollars and you bring the extra 30,000 dollars in cash on top of your purchase gap. The work takes about seven months, so you also carry roughly three times the interest.
Both are good deals. But the gut needs more cash, more time, and a more accurate ARV to work, and if you had assumed the cost-based leverage would carry it, you would have been short at the closing table. Run your own numbers on the deal calculator before you commit, especially if the plan is to keep the finished house as a rental instead of selling.
Matching your scope to your experience
Lenders also tier the borrower, not just the building. A first or second-time flipper doing a cosmetic refresh is a clean file. That same investor proposing a full gut with an addition is a different conversation, and leverage may come down until there is a track record. If you are early in your flipping career, a light or moderate rehab is usually the faster path to a yes, and it builds the exit history that makes the next gut easier to finance. Investors flipping through a company should also understand how fix and flip loans work for LLCs and other entities, since the guaranty and the experience both attach to the people behind the entity.
How to decide before you write the offer
The mistake we see most often is an investor pricing a house as a cosmetic flip and then discovering during rehab that the systems have to go, which quietly turns it into a gut with a cosmetic budget. Walk the house with your contractor before you lock a number. If the electrical panel is original, the plumbing is galvanized, or the roof is at the end of its life, budget those in now, because the lender is going to see them at the inspection whether you did or not. A scope that matches reality gets funded smoothly. A scope that hides the truth gets caught at the first draw.
Frequently asked questions
What counts as a full gut rehab to a lender?
Most lenders treat a project as a full gut when the rehab budget exceeds roughly half of the purchase price, or when the work takes the house to the studs and replaces major systems, changes the layout, or adds square footage. The exact threshold varies by lender and market.
Do cosmetic flips get better loan terms?
Often yes. Because the finished value is easier to trust and the timeline is shorter, cosmetic and light rehabs tend to qualify for higher leverage, fewer draws, and shorter terms, which lowers your total carry.
Can I finance 100 percent of the rehab on a gut?
The rehab itself can often be funded up to 100 percent through draws, but on a heavy rehab the after-repair value cap usually becomes the binding limit, so your total loan can still land below the full cost of the project and you bring the difference in cash.
Which is more profitable, a refresh or a gut?
Neither wins automatically. A gut creates more value but costs more, takes longer, and carries more risk. A refresh earns less per deal but turns faster and lets you recycle your capital. The right answer depends on your cash, your timeline, and your appetite for surprises.
Planning a flip in 2026? Whether it is a weekend refresh or a full rebuild, we will size the loan to the real scope. Call 412-990-2941 or request a quote. FMC Capital, NMLS #1840537. We are a Pittsburgh-based brokerage serving real estate investors across Pennsylvania and additional states.