A hard money loan down payment typically runs 20% to 30% of the purchase price, with some lenders going as high as 35% on riskier projects and as low as 10% to 15% for experienced investors with a strong track record. On a $250,000 property, that translates to roughly $50,000 to $75,000 in cash at closing. The exact figure depends on how the lender calculates its maximum loan, what you’re buying, and what you bring to the table as a borrower.
How Lenders Arrive at the Number
Hard money lenders use two metrics to cap the loan, and most apply whichever produces the smaller loan amount. The gap between that cap and your total project cost is your down payment.
Loan-to-Value Based on After-Repair Value
Loan-to-value (LTV) compares the loan to the property’s value. Many hard money lenders base LTV on the after-repair value (ARV), an appraiser’s estimate of what the property will be worth once renovations are complete. A lender offering 70% of ARV on a property appraised at $500,000 post-renovation would lend up to $350,000. If your purchase price plus rehab budget totals $400,000, you cover the remaining $50,000. ARV lending gives you access to more capital, but the lender is betting on your ability to execute the renovation on time and on budget.
Loan-to-Cost
Loan-to-cost (LTC) measures the loan against total project cost: purchase price plus documented renovation expenses. At 85% LTC on a $300,000 project, the lender funds $255,000 and you bring $45,000. LTC uses actual numbers rather than projected future value, so it tends to be the more conservative of the two. When a lender runs both calculations, the lower result sets your maximum loan.
What Pushes Your Number Up or Down
Your Track Record
Experience is the single biggest lever for reducing your down payment. An investor with multiple completed flips has proven they can manage timelines, control budgets, and sell at a profit, and lenders reward that history with lower equity requirements, sometimes as low as 10% to 15%. A first-time investor almost always faces the top of the range, often 30% or more, because the lender is pricing in higher odds of delays, cost overruns, or project abandonment.
Property Type, Condition, and Location
A single-family home in an established neighborhood is the easiest asset for a lender to resell if a deal goes sideways, so it draws the most favorable terms. Multi-unit apartment buildings, commercial properties, and mixed-use structures carry higher perceived risk and larger down payments. Serious structural damage, environmental issues, or code violations push the number up further. Location matters too: properties in strong urban markets with fast resale timelines get better terms than rural properties where a foreclosed home might sit for months.
Exit Strategy
Every hard money lender wants to know exactly how you plan to repay before they fund. The two standard exits are selling the renovated property or refinancing into a long-term conventional mortgage. A realistic plan supported by comparable sales and a detailed renovation budget signals lower risk and can improve your terms. If your exit depends on speculative appreciation or an untested market, expect the lender to demand more cash upfront.
Cash You’ll Need Beyond the Down Payment
The down payment is one line item in a much larger closing bill. Hard money borrowing costs run well above conventional mortgages, and the fees add up fast.
- Interest rates. Hard money rates generally range from about 9% to 15%, depending on the property, your experience, and the lender’s read on the project.
- Origination points. Lenders charge upfront fees called points, typically 1% to 5% of the loan amount. On a $300,000 loan, three points adds $9,000 at closing.
- Prepayment penalties. Some contracts guarantee the lender a minimum number of months of interest. If your contract guarantees six months and you sell in three, you still owe six months’ worth.
- Appraisal and closing costs. A standard single-family appraisal runs $300 to $500, with complex or commercial properties costing more. Title insurance, recording fees, and escrow charges land on top, as they would with any real estate transaction.
Add these together and the total cash needed at closing can reach 30% to 40% of the purchase price before you spend a dollar on renovation. Running a deal analysis that accounts for every fee, not just the down payment, is essential before you commit.
Why the Down Payment Is So Much Higher Than a Conventional Mortgage
For comparison, FHA loans allow qualified borrowers to put down as little as 3.5% of the purchase price, and conventional mortgages backed by Fannie Mae start at 3%.1U.S. Department of Housing and Urban Development. How Can FHA Help Me Buy a Home2Fannie Mae. What You Need To Know About Down Payments Those programs work because government insurance and the secondary market absorb much of the default risk.3Consumer Financial Protection Bureau. FHA Loans
Hard money lenders have none of those backstops. These are short-term loans, typically 6 to 36 months, and the property itself is the lender’s entire safety net. If you default, the lender has to foreclose on and resell a property that may be sitting mid-renovation. Requiring 20% to 30% down is the primary tool for making sure there’s enough equity cushion to recover the principal.
Ways Investors Cover the Down Payment
Cross-Collateralization
If you own another property with equity, you can pledge that equity to satisfy the down payment on a new hard money loan. The lender records a lien against both properties, which means both are at risk if you default. This lets you scale a portfolio without liquidating cash for each deal, but if the new project sells for less than the loan balance, the lender can pursue the equity in your pledged property to close the gap.
Gap Funding
Gap funding means borrowing the down payment itself from a second private lender. The primary hard money lender almost always needs to approve this secondary financing because it increases the total debt against the property. Second-position loans carry steep interest rates, often well above the already-high primary rate, and shorter repayment terms. Stacking two high-interest loans on one project only works if the deal generates enough profit to cover both.
What Seller Financing Won’t Do
Some investors ask whether a seller carryback can replace the down payment. In practice, most hard money lenders reject that structure because it pushes combined loan-to-value too high. Hard money lenders generally cap combined LTV at 65% to 70%, so a zero-down seller-carryback stacked behind a hard money first mortgage is not workable for most deals.
What’s on the Line if You Default
Even when you borrow through an LLC or corporation, most hard money lenders require a personal guarantee. The LLC may protect your personal assets in other business disputes, but the personal guarantee pierces that protection for this specific debt.
If you default, the lender’s first step is foreclosure. Foreclosure timelines vary by state, but the process for investment properties often moves faster than for owner-occupied homes because many consumer foreclosure protections do not apply to business-purpose loans. If the sale price does not cover the full loan balance, the lender can pursue a deficiency judgment, a court order allowing collection of the remaining balance from your personal assets. Deficiency judgments are more common after investment property foreclosures than after primary residence foreclosures, because many state anti-deficiency protections only cover owner-occupied homes.
Walking away from a failed hard money project is not as simple as handing back the keys. Bank accounts, other assets, and in some cases wages can be on the line, which is another reason the down payment math on the front end deserves careful attention.