Borrower Budget vs. Third-Party Estimate
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A one-story brick house in west Houston, built in 1996, about 2,600 square feet, under contract at $215,000. Ten closed sales in the same subdivision support an after-repair value of about $331,000. The borrower budgeted $70,000 for repairs.
The repair estimate built from the borrower’s own 39 photos, priced at what a third-party contractor would charge, came in at $98,500. Same house, same photos, a $28,500 difference — and that difference decides whether the borrower has enough cash to close.
The question
When the borrower’s repair budget and the lender’s estimate disagree, which number should the deal be sized on — and what does the gap do to cash required and the offer price?
Why the lender prices it at third-party cost
A lender’s repair number is not a guess at what the borrower will spend. It answers a different question: what would it cost the lender to finish the project with a hired contractor if the borrower could not? That price includes contractor margin, permits and the items no one sees until the walls are open.
A borrower who does some of the work, buys materials wholesale or has a crew they trust may well finish for less. That is not lost money. Repair funds are released in draws as the work is done, and any repair funds not used are returned to the borrower when the loan is paid in full. Sizing on the third-party number protects the project; it does not take the savings away from the borrower.
What the photos showed
Sound
- Brick and front elevation in good shape
- Main living areas and secondary bedrooms dated but sound
- Two A/C systems that looked mid-life
- Exterior work mostly cosmetic: garage door, fence, paint, yard
The problem areas
- Animal contamination in the primary suite, primary bath and rear room — flooring a total loss, odor remediation required first
- Occupied and heavily cluttered, detached garage packed solid
- Not visible in any photo: roof age, HVAC age, electrical panel behind rust, plumbing, sewer, slab
The third-party estimate
| Trash-out and clean-out (house and garage) | $7,000 |
| Animal contamination remediation | $9,000 |
| Flooring | $12,000 |
| Wallpaper removal and wall prep | $4,500 |
| Interior paint, doors, trim, lighting | $11,000 |
| Kitchen | $15,000 |
| Primary bath, hall bath, half bath | $20,500 |
| Garage door, garage exterior, trim, gutters, fence, yard | $11,500 |
| HVAC, electrical, plumbing and water heater allowances | $6,500 |
| Permits and miscellaneous | $1,500 |
| Total | $98,500 |
The full range ran from $58,100 (cosmetic only, every system assumed to pass) to $162,500 (full scope, roof and one HVAC system replaced). The budget figure carries the roof at pass-inspection and the systems at service-and-repair — so $98,500 is not the worst case. The roof alone could add $15,000.
The lines that most often go missing from a borrower budget are the ones that aren’t remodeling at all: the clean-out and the remediation total $16,000 here before a single new finish goes in.
What the gap does to the deal
The same purchase, the same after-repair value and the same loan sizing — only the repair number changes. Cash required includes closing costs (lender points, title and broker fees sized on the loan) and six months of reserves (interest plus half a year of property taxes).
| Borrower $70,000 · Third-party $98,500 | |
| Loan at 70% of ARV | $231,686 · $231,686 |
| Cash required at 70% | $82,956 · $111,456 |
| Loan at 75% of ARV | $248,235 · $248,235 |
| Cash required at 75% | $68,145 · $96,645 |
| Borrower cash available | $100,000 · $100,000 |
| Liquidity at 70% | Covered · $11,456 short |
| Supportable offer (70% of ARV less repairs and closing costs) | $148,102 · $119,602 |
On the borrower’s number
- Cash to close looks comfortable at both 70% and 75%
- About $17,000 of cushion left at 70%
- A repair overrun of that size has nowhere to come from mid-project
On the third-party number
- The borrower is $11,456 short at 70% and has about $3,000 of cushion at 75%
- The supportable offer drops by $28,500 — dollar for dollar with the repair gap
- At the $215,000 contract price, the deal only works on the higher leverage tier
When the borrower’s number wins
The lender’s estimate is the default, not the last word. A borrower’s budget can replace it when the borrower can show why it is better:
- Signed contractor bids for the major scopes, from licensed contractors, at the prices in the budget
- Evidence a system is sound — roof permit history or a roofer’s report, HVAC data plates, an electrician’s look at the panel
- A line-item budget that covers the clean-out, remediation and permits, not just the finishes
Each of those moves a specific line. A total with nothing behind it does not.
The bottom line
The repair number is a cash number. On this house, the gap between the borrower’s budget and a third-party estimate was $28,500 — enough to turn a comfortable close into a liquidity shortfall and to cut the supportable offer from about $148,000 to about $120,000. Size the deal on what it would cost someone else to finish. If you finish for less, the difference comes back to you at payoff.
Price the repairs before you price the offer.
Method and assumptions
- Property figures come from an actual file reviewed in October 2026. No address, owner or borrower details are published.
- After-repair value is based on ten closed sales in the same subdivision over the last 12 months.
- The $98,500 estimate was prepared from 39 photographs. No site visit, inspection or measurement was performed.
- Closing costs assume lender points of 1.5%, title at 1.5% of the loan, broker origination of 2%, $1,000 of title fees and a $1,000 broker closing fee. Reserves assume six months of interest at about 11% plus half of the annual property tax.
- Loans are sized at 70% and 75% of after-repair value. Actual leverage, rate and terms depend on the program and the borrower.
- Run your own deal through the Deal Executive Summary Analyzer.
Related guides
Get your repair number checked before you write the offer
Run the deal through the analyzer and send interior and exterior photos — your own, from the listing or from a prior MLS listing. The full report is available at acp-lending.com, and investors can sign up there to receive new reports by email.
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Illustrative case study only. This is not a commitment to lend or a guarantee of financing. Rates, terms, leverage and eligibility are subject to credit approval, appraisal, property review, lender guidelines and final underwriting. Investment-property financing is subject to underwriting, lender approval, appraisal or alternative valuation, title work, and a complete borrower file.