Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
The Quick Read: A first-time flipper’s hard money down payment is the gap between the purchase price and the loan, and it is only one of three cash buckets: down payment, closing costs, and post-closing reserves. Across Lendmire’s wholesale network, first-timers sit at the lowest leverage tier, so the cash needed is higher than for experienced borrowers.
- On a fix-and-flip, leverage is tiered by completed projects: 85% of project cost with fewer than 2, 90% at 2+, and 93% at 5+. Every tier is capped at 75% of after-repair value (ARV).
- Up to 100% of the rehab budget funds in draws against completed work, so you front costs first.
- Reserves are a separate bucket from the down payment, and one cannot substitute for the other.
- A credit score of 620 is the minimum, with added conditions below 660. All terms vary by lender, property, and experience.
- A true 100% purchase program does not exist.
What this loan actually costs to carry.
Hard money is sized against the project and priced by time. Enter the deal and see how much the program will lend, the cash required at closing, the carry while you hold it, and what is left at the exit.
Leverage tiers on the current program: 85% with fewer than 2, 90% with 2 or more, 93% with 5 or more completed projects — every tier capped at 75% of after-repair value. Loan amounts up to $5,000,000, larger by exception; terms of 6 to 18 months, interest-only, no prepayment penalty. The rehab portion funds in draws against completed work, not at closing.
Program parameters shown update from Lendmire’s centralized guideline source. Rate, points, and months are editable assumptions, not quoted terms.
Cost cap sets the loan · positive spread
Illustrative estimate only — not a quote, Loan Estimate, approval, or commitment to lend. Rate, points, and months are editable assumptions. Hard money is business-purpose financing for real estate investors, not a consumer mortgage. Leverage on the current program tops out at 93% of project cost for investors with a documented track record, capped at 75% of after-repair value, with rehab funding up to 100% of the documented budget released in draws; actual terms vary by lender, borrower experience, property, and exit. Lendmire is a mortgage broker, not a lender.
What Is a Hard Money Down Payment, and Why Do Lenders Require One?
A hard money down payment is the equity you put into the purchase so the lender is not carrying the whole risk. Corporate Finance Institute describes hard money as short-term, property-secured lending from private lenders. Because the property is the collateral, the lender wants a cushion if the project stalls or the resale value falls short.
The structure is asset-based. Lenders look at the property, the scope of work, and the exit plan first. Your credit still matters, but it is not the whole story.
What Is the Down Payment Calculated On?
The down payment is calculated against project cost, then limited by ARV. Most first-timers assume it is a percentage of the purchase price alone. It usually is not.
| Basis | What it measures | Why it matters |
|---|---|---|
| Purchase price | What you pay the seller | Sets the purchase-side cash |
| Project cost | Purchase plus rehab budget | Drives the tiered leverage figure |
| ARV | Projected value after repairs | Hard cap on the loan |
Lenders size the loan against two limits and take the lower result. The first is loan-to-cost, which on a first-timer file is typically 85% of project cost. The second is the ARV cap of 75%. On a light rehab, the cost limit usually binds. On a heavy rehab with a modest ARV, the ARV cap can bind instead, and your cash need jumps.
Bridge purchases with no rehab run up to 80% of the purchase price. Rate/term and cash-out refinances run up to 65% of value. These are separate products from the flip loan.
How Do You Calculate It, Step by Step?
Work the deal in four moves, using percentages and your own numbers.
1. Add the purchase price and the rehab budget to get project cost.
2. Apply the leverage tier for your experience. A first-timer uses 85% of project cost.
3. Apply 75% to your ARV estimate.
4. Take the smaller of the two results as your maximum loan.
Your out-of-pocket cash is project cost minus that loan, with one wrinkle. Rehab funds arrive in draws, so the loan funds up to 100% of the rehab budget only as completed work is inspected. At closing, your cash covers the purchase gap, fees, and reserves. Later, you front contractor costs between draws.
Here is a labeled example using modeled inputs, not market data. Say a flip has a modest rehab and a strong ARV. The cost limit binds, and a first-timer funds roughly 15% of project cost out of pocket. Now say the same house needs a gut rehab and the ARV is thin. The 75% ARV cap binds, the loan shrinks, and the equity you bring rises well above that 15%. Same house, same borrower, different cash need.
How Are Reserves Different From the Down Payment?
Reserves are post-closing liquidity, while the down payment is equity in the deal. They answer different questions.
| Factor | Down payment | Reserves |
|---|---|---|
| Purpose | Equity cushion for the lender | Cash to carry the loan if the project runs long |
| When it is paid | At closing | Held in the bank after closing |
| Verified by | Closing funds | Bank statements |
| Can it replace the other? | No | No |
Fannie Mae’s selling guide offers a useful definition of the concept. Reserves are the assets left after closing, with funds needed to close subtracted first. Agency rules do not govern hard money, but the logic carries over. The cash you use for the down payment does not count again as reserves.
Reserve requirements vary by lender, leverage, and experience. First-timers are typically asked for more cushion than repeat borrowers. Some lenders say they do not require reserves at all, while others treat thin reserves as the main reason a first file stalls. Treat the requirement as a question to ask early, not an assumption.
What Counts as Reserves, and How Are They Verified?
Reserves are liquid assets documented on recent statements. Checking and savings accounts are the cleanest. Brokerage balances can work. Retirement accounts and anything tied up or borrowed against raise more questions.
Expect a lender to review recent bank statements and look at where the money came from. Large unexplained deposits are a red flag. So is cash sitting in an account that does not match the borrowing entity or your own name. Keep the paper trail clean before you apply, not after.
What Does the Full Cash Stack Look Like?
Total cash for a first flip is the down payment plus closing costs plus reserves plus working capital for draws. The down payment alone understates it.
| Cash bucket | When you need it |
|---|---|
| Down payment | At closing |
| Closing costs, appraisal, insurance, prepaids | At closing |
| Interest carry on drawn balance | Monthly during the project |
| Reserve cushion | Verified up front, held after closing |
| Draw-gap working capital | During construction |
Stress-test three versions of the same deal. A light rehab on schedule needs the smallest stack. A heavy rehab raises the draw gap and the carry. A delayed project adds months of interest on the full balance, and the reserve cushion is what absorbs it. The loan covers only the scope agreed at closing, so overruns come from your pocket.
What Is the Rehab Draw Gap?
The draw gap is the cash you front before the lender reimburses completed work. The rehab budget is not paid upfront. A contractor finishes a phase, the lender inspects it, and then funds release.
Investors who describe first deals often say they had to carry large materials and labor costs until each inspection cleared. That is why working capital matters beyond the down payment.
What Changes for a First-Timer Versus an Experienced Flipper?
Experience moves leverage, not eligibility. In the network, completed projects lift you from 85% of project cost to 90% at 2+ projects and 93% at 5+. The top tier is reserved for experienced investors. A first-timer qualifies at the lower tiers, and the same 75% ARV cap applies to everyone.
The practical effect is simple. Fewer completed projects mean more of your own cash in the deal. Credit matters too: 620 is the minimum, with added conditions below 660. Terms run 6 to 18 months, interest-only, with no prepayment penalty. All of it varies by lender, property, and experience, and nothing here is a commitment to lend.
Where Should the Cash Come From?
Savings and documented partner capital are the cleanest sources. Borrowed funds are the risky ones. If the down payment or reserves come from a loan, the lender may see the same cash twice, and your carry gets heavier while the project runs.
Be honest about the tradeoff. A partner shortens your cash need, but it also shares the profit. A larger down payment can improve terms on some files, yet it drains the liquidity you need for the draw gap. Do not empty the account to win a better structure and then stall at the first inspection.
What Goes Wrong When Reserves Run Short?
Short reserves turn a manageable delay into a forced decision. Interest keeps accruing on the drawn balance. A contractor waits on payment. The ARV comes in lower than expected, and the exit shrinks. Underestimating the rehab budget is a financing risk as well as a profit risk.
If the property is held mainly for sale, the IRS treats it as inventory rather than a capital asset, per IRS Publication 544. Tax treatment varies; consult a qualified professional.
Pre-Submission Checklist and Readiness Test
- Purchase agreement and a line-item rehab budget.
- Contractor quotes that match the scope.
- Recent bank statements in the name of the borrower or entity.
- A written exit plan with a realistic ARV.
- A reserve cushion that survives a delayed project.
Reusable formula: total cash needed equals your down payment, plus closing costs, plus reserves, plus the draw gap. If your liquid cash does not cover that sum with room left over, the walk-away signal is clear. Shrink the deal, add a documented partner, or wait.
Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized as a rental. Lendmire brokers that path. Read the complete DSCR loans guide for how coverage is reviewed on that exit.
Key Terms Defined
ARV (after-repair value): The estimated market value of the property once the planned work is finished.
Loan-to-cost: The loan amount as a share of the purchase price plus the rehab budget.
Draw: A release of rehab funds after the lender inspects completed work.
Reserves: Liquid assets left in the bank after closing, kept to carry the loan if the project runs long.
Seasoning of funds: How long money has sat in your account, used to show it is truly yours.
Frequently Asked Questions
Can a first-time flipper get hard money with no money down?
No. There is no true 100% purchase program. Up to 100% of the rehab budget can fund in draws, but that is a rehab figure, not a purchase figure. You still bring equity for the purchase side, plus closing costs and reserves.
Do hard money lenders require reserves?
Often, yes, though it varies by lender, leverage, and experience. First-timers are commonly asked to show more cushion. Ask early and confirm in writing, because thin reserves are a common reason a first file stalls.
Is the down payment based on purchase price or ARV?
Both matter. The loan is sized on project cost under a tiered leverage figure, then capped at 75% of ARV. Your down payment is the difference between what you need and what the lower of those two limits provides.
Does a bigger down payment reduce the reserves I need?
Not automatically. They are separate buckets with different jobs. Extra equity may improve the file, but lenders still look at post-closing liquidity on its own.
Can I use a loan to fund my down payment?
It is risky. Borrowed funds raise source-of-funds questions and add carrying cost. Documented savings or partner capital are safer.
If you are buying, rehabbing or refinancing an investment property on a short timeline and want to see how the numbers work, Lendmire can help you compare hard money options based on the project, the exit plan, leverage, and your goals. Reach the team at 828-256-2183.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349) arranging DSCR investor loans in 41 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR loans are evaluated by the lender on rental income rather than personal income, subject to lender guidelines — a fit for LLC-owned portfolios, self-employed investors, and operators scaling beyond conventional loan caps. Recognized as a Scotsman Guide Top Mortgage Workplace in 2025 and 2026.
Hard money often opens the deal, and a refinance typically closes the chapter – see the hard money loan overview.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Corporate Finance Institute: Hard Money Loan
2. Fannie Mae Selling Guide B3-4.1-01: Minimum Reserve Requirements
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Use a Hard Money Loan to Buy Out Siblings or a Partner? · How Much Down Payment, Rent and Reserves Move a Duplex DSCR · Hard Money Loan Requirements to Exit Seller Financing or Subject-to
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.