Down Payment Requirements for Hard Money Loans
In the world of real estate investing, understanding financing options is key to making prudent decisions. If you're wondering "how much of a down payment do I need for a hard money loan" or "how much do hard money lenders loan," you're in the right place. Hard money loans offer a practical, asset-based approach to funding fix-and-flip or BRRRR projects, focusing on the property's potential rather than stringent personal qualifications. At Property Flip Loan, we specialize in Maryland hard money lending, providing flexible terms that require manageable down payments while ensuring investors maintain skin in the game. Let's explore the typical requirements, including cash on hand needs, to help you plan your next deal.
What Is a Down Payment in Hard Money Lending?
A down payment is the upfront cash you contribute toward the property purchase, with the lender covering the rest. In hard money loans, this is often expressed as a percentage of the purchase price or tied to Loan-to-Cost (LTC) ratios. Unlike traditional bank loans (which may require 20–25% down for investment properties), hard money down payments are calculated conservatively to protect both parties—ensuring the deal has strong equity from day one.
This structure promotes responsible investing: you bring equity, we provide the leverage. It's a balanced way to mitigate risk while enabling quick closes on high-potential properties.
How Much Down Do You Need for a Hard Money Loan?
The short answer to "how much down do you need for a hard money loan" is typically 15–35% of the purchase price, depending on the lender's terms and the deal's strength. At Property Flip Loan, we loan up to 85% of LTC (purchase + rehab costs) or 65% of ARV, meaning your down payment covers the remaining 15–35%.
For example:
Purchase Price: $200,000
Rehab Budget: $50,000
Total Cost (LTC): $250,000
If we lend 85% LTC ($212,500), your down payment is $37,500 (about 19% of purchase price).
This flexibility allows experienced investors to minimize upfront cash while still requiring cash on hand to demonstrate commitment. Factors influencing your down payment include:
Deal Quality: Strong ARV comps and a clear exit strategy can reduce it.
Borrower Experience: Seasoned flippers often qualify for higher leverage (lower down payments).
Property Type: Distressed or high-rehab deals may require more equity.
Compared to banks, hard money down payments are often lower for flips, as approval isn't bogged down by personal credit or income verification.
How Much Do Hard Money Lenders Loan?
When asking "how much do hard money lenders loan," it boils down to two metrics:
Up to 65% of After-Repair Value (ARV): Based on the property's projected value post-rehab—ensuring a conservative buffer for market fluctuations.
Up to 85% of Loan-to-Cost (LTC): Covers most of the purchase and rehab, leaving you with a reasonable down payment.
At Property Flip Loan, we take the lesser of these two to keep terms balanced and risk-managed. This approach supports conservative investing: you won't over-leverage, and we fund deals with solid economics. For a $300,000 ARV property, we might loan up to $195,000 (65% ARV), requiring about $105,000 in cash on hand for down payment and closing.
Cash on Hand: Beyond the Down Payment
Don't forget cash on hand for additional costs—typically 2–5% of the loan amount. This includes:
Origination Fees: 1.5–2.5% (deducted at closing).
Appraisal/Inspection: $500–$1,000.
Closing/Legal Fees: $800–$1,500.
Reserves: We recommend 3–6 months of interest payments in reserve for peace of mind.
Total cash on hand might be 20–40% of the purchase price when factoring everything in. This conservative buffer ensures you can handle unexpected rehab overruns without stress.
Why Hard Money Loans Are a Smart Choice
Hard money loans shine for their speed (close in 7–14 days) and flexibility—no W-2s or perfect credit required. While down payments ensure equity, the interest-only structure keeps monthly costs low during rehab. No prepayment penalties mean you can exit early via sale or refi, making it ideal for BRRRR paths.
In a market potentially influenced by Fed rate cuts under the new Chair Kevin Warsh, hard money remains a reliable tool for seizing opportunities without long-term commitment.
At Property Flip Loan, our Maryland-focused terms make down payments straightforward and investor-friendly. Whether you're flipping in Annapolis or Salisbury, we're here to help.
Ready to calculate your down payment? Contact us for a free quote today—let's fund your next profitable deal!