The Quick Read: On a distressed purchase, your down payment is the gap between what the lender will fund and what the whole project costs, which on most fix-and-flip files across Lendmire’s wholesale network runs roughly 7% to 15% of project cost, with the loan also capped at 75% of after-repair value.
- Leverage is sized on project cost and tied to experience: up to 93% of project cost at 5+ completed projects, up to 90% at 2+, and 85% with fewer than 2. Every tier is capped at 75% of after-repair value. Figures vary by lender, property, and experience.
- Up to 100% of the rehab budget is funded in draws against completed work, so you front early costs.
- The 100% figure applies only to the rehab budget. Nothing in the network funds the full purchase price.
- Cash to close is always larger than the down payment alone.
- A bridge purchase with no rehab can reach up to 80% of the purchase price.
A distressed house looks cheap on the listing. The cash it takes to own it is a different number. Investors often plan around the down payment and get surprised by everything stacked on top of it.
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.
This article walks through how the number is built, what sits on top of it, and where the usual rule bends. Everything here is for business-purpose investment property, not owner-occupied homes. Nothing is a commitment to lend, and every file is underwritten individually.
What “Down Payment” Means on a Distressed Deal
The down payment is the part of the purchase and project you pay with your own money. It is not a fixed percentage. It is whatever is left after the lender applies its leverage limits to your deal.
Three terms get mixed up, so separate them early:
- Down payment: your equity in the purchase and project, after the loan.
- Cash to close: the down payment plus fees, title, insurance, and other costs due at closing.
- Rehab holdback: repair money the lender holds back and releases as work is finished.
Hard money is short-term, asset-based lending. The lender looks hard at the property, the plan, and the exit. That is why your income matters less here than it does on a standard mortgage. Corporate Finance Institute describes the same basics: the property is the collateral, and terms are short.
One more note on the word “distressed.” It usually describes the property: dated, damaged, vacant, or neglected. This article covers the property meaning only.
How Lenders Size the Loan
Lenders size the loan against several bases at once, then take the lowest answer. A distressed property needs this because its current value and its finished value are far apart.
| Basis | What it measures | Role in sizing |
|---|---|---|
| Purchase price | What you pay today | Starting point for the purchase piece |
| Rehab budget | Your scope of work | Funded through draws |
| Project cost | Purchase plus rehab | The base for the main leverage tier |
| After-repair value (ARV) | Value once finished | Hard ceiling on the loan |
Here is how that plays out across the network. Fix-and-flip leverage is tiered by documented completed projects.
| Experience | Share of project cost | Also capped at |
|---|---|---|
| 5+ completed projects | Up to 93% | 75% of ARV |
| 2+ completed projects | Up to 90% | 75% of ARV |
| Fewer than 2 | 85% | 75% of ARV |
These are typical ranges on select wholesale-network programs. They vary by lender, property, and experience.
Loan-to-value, or LTV, is the loan divided by the property’s value. The same logic explains why a lender’s cap leaves you a gap.
Two other paths use different bases. A bridge purchase with no rehab can reach up to 80% of the purchase price. A cash-out or rate-and-term refinance tops out around 65% of value.
How to Calculate Your Number, Step by Step
Work the math in this order:
1. Add the purchase price and the rehab budget. That is project cost.
2. Multiply project cost by your experience tier. That is the first loan ceiling.
3. Multiply ARV by 75%. That is the second ceiling.
4. Take the lower of the two. That is the maximum loan.
5. Subtract the loan from project cost. The remainder is your equity in the deal.
The rehab portion adds a wrinkle. Up to 100% of the rehab budget funds in draws against completed work. That is a rehab-budget figure, never a purchase leverage figure. It means the lender may cover the repair line, but it pays after the work is done.
Three illustrative deals
These examples are modeled assumptions, not market data. To avoid dollar amounts, each is expressed as a percentage of ARV.
| Deal type | Purchase / rehab (% of ARV) | Binding limit | Your gap (% of ARV) |
|---|---|---|---|
| Light cosmetic, 85% tier | 60 / 10 | Project cost | 10.5 |
| Heavy rehab, 85% tier | 45 / 35 | Project cost | 12 |
| Expensive buy, 90% tier | 70 / 20 | 75% ARV cap | 15 |
Walk through the first row. Project cost is 70% of ARV. At the 85% tier the loan is 59.5% of ARV, well under the 75% cap. Your gap is the other 10.5%.
The heavy rehab row runs the same way. Project cost is 80% of ARV, the loan is 68% of ARV, and you cover 12% of ARV.
The third row is where the cap bites. Project cost is 90% of ARV. Applying the 90% tier to that cost would size the loan above 75% of ARV, so the 75% of ARV limit controls and the loan stops there. You cover 15% of ARV, which is more than a simple “10% down” reading would predict. Every figure here varies by lender and program: guidelines, property type, leverage, and credit profile all apply.
Here is a pattern that shows up across distressed files. The deeper the discount on the purchase, the less the cap matters. The closer you pay to finished value, the more the cap, not the tier, sets your cash.
The Cash That Sits on Top of the Down Payment
Cash to close is the number that actually leaves your account. Plan for these line items:
| Item | Why it matters |
|---|---|
| Down payment | Your equity in the deal |
| Lender and processing fees | Charged by the lender; vary by lender |
| Appraisal and inspection | Establishes as-is value and ARV |
| Title and closing costs | Often higher on distressed properties |
| Insurance | A builder’s-risk policy is commonly required |
| Interest carry | Interest-only payments while the project runs |
| Draw fees | Inspection or wire fees on each release |
| First-draw float | Early repair costs you pay before reimbursement |
| Contingency | Repairs always find extra scope |
The float deserves its own warning. Because rehab money is reimbursed after inspected work, you pay the first round of contractor costs yourself. Contractors often want a deposit to start. So a deal advertised with funding for the entire rehab still demands real cash early.
Interest also builds as draws are released, and the property produces no income while you work. That carry is a cost you pay from your own pocket, so build it into the budget.
Where the General Rule Breaks
The tiers above are the rule. These are the places it bends.
The cap binds. As the third example showed, a purchase priced near ARV pushes you into the cap. Your gap grows even at a high experience tier.
A very deep discount. Buy low enough and the total cost sits far below the cap. Then the tier is the only limit, and your gap shrinks toward the tier’s remainder. But even then, no program in the network funds the full purchase price. Purchase funding is capped at a percentage of cost within the experience tier, and the 100% in marketing usually refers to the rehab budget.
Low appraisal. If the appraiser’s ARV comes in under your plan, the 75% cap drops with it. Your required cash rises, sometimes sharply. This is the main way a deal that penciled out gets expensive overnight. Stress-test your ARV with conservative comps before you commit. The after-repair value formula investors use to set offers is a good place to sanity-check your own number.
First-time investors. Those with fewer than 2 completed projects land at the 85% tier. The top tier is reserved for experienced investors. Credit also matters. A 620 score is the minimum, with additional conditions below 660, and the strongest terms go to stronger files.
Property type. The network lends on non-owner-occupied residential property of 1-4 units. Commercial, industrial, land and lots, hospitality, and owner-occupied properties are not offered. If your distressed deal is a lot or a small commercial building, this program does not fit.
No rehab at all. A property that is purchased and held as-is can use the bridge purchase structure, up to 80% of the purchase price. That is a different base than the flip tiers, so the down payment is 20% or more.
Refinancing instead of buying. If you already own the distressed property free and clear, a cash-out or rate-and-term refinance tops out around 65% of value. That is a separate calculation from a purchase.
Distressed acquisition channels. Auctions, bank-owned sales, short sales, and probate each bring their own seller rules. Some sellers set tight payment terms or want proof of funds early. The exact mechanics vary by seller and sale type, so confirm them with your lender before you bid, not after.
Proof of Funds and Where the Money Comes From
Lenders want to see that your equity is real. Expect to document liquid cash for the down payment and closing costs. Many lenders also look at whether you can handle the carry and overruns.
Common sources include savings, a partner’s capital, or a personal loan from family. Some lenders will also consider extra collateral, such as another free-and-clear property, as a substitute for part of the cash. Whether yours does is a lender-by-lender question. Ask early.
Borrowed down payment funds draw extra scrutiny. If a loan supplies your equity, the lender may count that debt against you. Keep the paper trail clean, and expect questions about any large recent deposit.
An LLC can hold title, subject to lender program eligibility. Lenders often ask for a personal guarantee anyway. So your own liquidity and credit still count even when an entity owns the deal.
Ways to Reduce the Cash You Need
You have a few honest levers:
- Build your track record. Moving from the 85% tier to the 90% tier cuts your required equity share on project cost. Documented completed projects are what move you.
- Buy lower against ARV. This keeps you under the 75% cap, which preserves your tier’s full benefit.
- Trim the scope. A tighter rehab budget lowers project cost and the cash tied to it.
- Bring in a partner. Partner capital can fill the gap. Agree on the split before you close.
- Ask about additional collateral. Some lenders will consider it. Not all will.
Every lever has a cost. A partner takes a share of profit. A thinner scope risks surprise repairs. A lower purchase price means more competition for the deal. And a smaller down payment means more debt carry and less cushion if the exit slips. Lendmire’s piece How to Reduce Your Hard Money Down Payment on a Purchase or Refinance goes deeper on these levers.
What Goes Wrong
Distressed purchases fail in predictable ways.
Underestimated repairs. Hidden damage is the classic distressed-deal problem. A budget with no contingency leaves you funding the difference yourself.
Draw timing. Money arrives after inspected work, not before. Investors who assumed the funds would be there on demand have had to front materials from their own accounts.
Carry creep. Terms run 6-18 months, interest-only, with no prepayment penalty. A delayed project means more months of interest without income. There are no multi-year options on the current program, so the schedule has to hold.
A low ARV. Covered above. It cuts the loan and raises your cash in one move.
A weak exit. If you plan to sell, the sale price must clear the loan and costs. If you plan to hold, you need a refinance that works. Many investors refinance out of hard money into long-term rental financing once the property is stabilized, and Lendmire brokers that path through the network. A heavily distressed property usually cannot go straight into that kind of loan, because it has to be rentable first. Lendmire’s complete DSCR loans guide explains what that later loan looks for, and the debt service coverage ratio formula behind it is simple: rent divided by the full monthly obligation.
Notice one thing about that exit. Clearing a rent-coverage test is not the same as positive cash flow. Coverage compares rent to the principal, interest, taxes, insurance, and dues only. Repairs, vacancy, and management sit outside it.
How Much Should You Actually Put Down?
The lender sets the minimum cash. You set the sensible cash.
The minimum is what keeps the file inside its tier and the cap. The sensible amount is higher, because it includes the float, the carry, and a contingency. A useful habit: size your liquid reserves to cover the down payment, all closing costs, several months of interest carry, and the first draw, then add a repair cushion on top.
There is a trade-off. Tying up more cash lowers your debt and your carry, but it also lowers your return on cash and limits how many deals you can do at once. Putting down less spreads your capital further, but it narrows your margin for a bad surprise.
Honestly, this is a genuine toss-up for experienced investors, and it depends on how many projects you run at once. For first-timers the answer leans toward more cushion. A first deal that runs long is far more dangerous than a first deal that earns a bit less.
Questions to Ask Before You Commit
- What base sets my loan: project cost, purchase price, or ARV, and which cap applies?
- What tier do I fall in given my completed projects?
- How are rehab draws requested, inspected, and released?
- What fees come out of closing, and which are charged later?
- What will the lender need as proof of funds?
- What happens to my cash if the appraisal comes in below my ARV?
- How does the lender treat an LLC and a personal guarantee?
- What is my exit, and what does the lender need to see for it?
Key Terms Defined
After-repair value (ARV): the estimated value of the property once the planned work is finished.
Loan-to-cost: the loan as a share of purchase price plus rehab budget.
Draw: a release of rehab money after the lender confirms work is complete.
Holdback: rehab funds the lender keeps in escrow until draws are approved.
Cash to close: the total money you owe at closing, including the down payment and all costs.
Float: repair costs you pay yourself before a draw reimburses you.
Cross-collateral: pledging a second property as added security instead of some cash.
Frequently Asked Questions
Can I buy a distressed property with no money down?
Not through these programs. Financing is tiered by project cost, and the loan is also capped as a share of after-repair value. The 100% figure applies only to the rehab budget, which is released in draws after completed work. You still bring equity for the purchase and cash for fees, carry, and the early repair costs.
Is the down payment based on the purchase price or the ARV?
Both matter. The main leverage tier is based on project cost, which is purchase plus rehab. The loan is then capped at 75% of ARV. Whichever limit is lower sets the loan, and your down payment is the remainder.
Does a lower credit score raise my down payment?
It can affect the terms you are offered. The network’s minimum is 620, with additional conditions below 660. Experience tiers drive leverage most directly, but credit shapes which programs and terms are open.
How does a first-time flipper’s down payment compare to an experienced investor’s?
With fewer than 2 completed projects, the tier is 85% of project cost, so equity runs about 15%. At 2+ projects it is up to 90%, and at 5+ it is up to 93%. The 75% ARV cap applies to all tiers.
What if my property needs no repairs?
A purchase with no rehab can use the bridge structure, up to 80% of the purchase price. That means about 20% down or more, plus closing costs. The exit still needs a plan, whether sale or a long-term refinance. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Run Your Own Distressed Deal
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. Call 828-256-2183 or request a quote. Lendmire is a mortgage broker arranging financing through select lenders in its wholesale network across 41 markets, including Washington, D.C. Programs change, and nothing here is a commitment to lend.
For current guidelines and terms, see Lendmire’s hard money loan programs page.
About Lendmire
As a DSCR and non-QM mortgage broker, Lendmire (NMLS# 2371349) connects investors with wholesale lending channels across 41 markets, including Washington, D.C. The property’s rental income, not the borrower’s traditional personal-income documentation, is central to lender review on rental loans, which works for self-employed operators and portfolios beyond four financed properties. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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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
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Hard Money Bridge Down Payment Requirements for Out-of-State Investors · How Much Down Payment a Hard Money Lender Requires on a Flip · How to Meet Hard Money Requirements on Your First Fix-and-Flip
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.