Hard Money Down Payment Rules for a 2-4 Unit Fix-and-Flip

The Quick Read: The cash you bring to a 2-4 unit flip is the gap between the loan and total project cost, and it is not a flat percentage of the purchase price. Across the wholesale network, leverage is sized on project cost (purchase plus rehab) and then capped against after-repair value. The cash due at closing is only part of the cash you need.

• Leverage runs 85% of project cost with fewer than two completed projects, 90% with two or more, and 93% with five or more.
• Every tier is capped at 75% of after-repair value, and the lower of the two limits governs.
• Up to 100% of the rehab budget funds in draws against completed work. That is a rehab figure, not a purchase loan-to-value.
• There is no true 100% purchase program. All figures vary by lender, property, and experience.

Most first-time flippers ask the wrong question. They ask what percent down a lender wants. The better question is what the lender will fund against cost and value, and how much cash that leaves to the investor. The rest of this piece walks through it.

Key Terms Defined

• Loan-to-cost (LTC): The loan compared with total project cost, meaning purchase price plus the rehab budget.
• After-repair value (ARV): An appraiser’s estimate of what the property is worth once the renovation is finished.
• Equity gap: The part of project cost the loan does not cover. This is your cash in the deal.
• Draw: A release of rehab funds after completed work is inspected.
• Cash to close: The gap plus closing costs, lender fees, and reserves.

How Is the Down Payment Actually Calculated?

The gap is project cost minus the loan, and the loan is the lesser of two limits. One limit is the tier percentage of project cost. The other is 75% of ARV. Whichever produces the smaller loan sets your cash requirement.

Run it as a ratio, not a dollar figure. Picture an investor with a fourplex purchase and a rehab budget that together make up the project cost. With two completed projects, the tier is 90% of project cost, so the equity gap is roughly 10% of cost before fees. With fewer than two, it is 15%. With five or more, it is about 7%. That is why the gap typically lands in the 7%-15% range of project cost, subject to lender guidelines.

Market-wide, published figures run higher than these tiers in some places. Treat that as market color. Network leverage is the tier structure above.

Where Does the 2-4 Unit Change the Picture?

A 2-4 unit is still residential for lending purposes, so the same tiers apply. What changes is the appraisal and the exit. These properties are appraised on Form 1025, which the Fannie Mae Selling Guide names as the appraisal report for two- to four-unit properties. Appraisal Colorado notes the form covers duplexes, triplexes, and fourplexes and includes an income approach.

That form matters for two reasons. First, ARV on a multi-unit leans on rent and income data as well as sales comps, so a thin rent picture can pull ARV down. Second, if you plan to hold the building, the rent schedule feeds the coverage calculation on the long-term loan that takes you out of the flip.

Per-unit rehab scope also adds up. Four kitchens and four baths put real weight on the rehab budget, which raises project cost and the draws you will front. Collateral must be non-owner-occupied, 1-4 units. Owner-occupant house hacks follow different rules, and five or more units fall outside this program.

Why Does the ARV Cap Sometimes Beat the Tier?

The ARV cap becomes the binding limit when the purchase is cheap and the rehab is heavy, or when the budget is optimistic against the likely value. The tier loan then exceeds 75% of ARV, and the loan drops to the cap.

Consider a scenario where the budget is large relative to the purchase price. The tier math suggests a loan at 90% of cost, but the appraisal comes in so that 75% of ARV is lower. The loan follows the lower number, and the gap grows beyond what the headline tier implied. Lendmire’s piece Does a 2-4 Unit Flip Need a Bigger Down Payment With Hard Money? covers the same effect.

Low appraisals are the file killer here. A budget that grows mid-project does the same thing. Build cushion into your cash plan before the appraisal lands.

What Does “100% Rehab Financing” Really Mean?

It means up to 100% of the rehab budget is funded in draws against completed work. It does not mean 100% financing of the deal. Rehab dollars are reimbursed after inspection, so you front the work first.

The mechanics look like this:

1. The loan funds an initial advance at closing for the purchase.

2. The rehab budget sits in a holdback.

3. You complete a phase of work and the lender inspects it.

4. You submit invoices, and funds release for the completed phase.

Between the work phase and the invoice submission, you pay contractors out of pocket or on credit. This float is the largest hidden cash need on most flips. Draw fees on each release add up on a multi-unit job with many phases.

What Is the Full Cash Worksheet?

The down payment is only part of the cash you bring. A flipper should budget every line below.

Terms run 6-18 months, interest-only, with no prepayment penalty. Lenders want to see money left after closing to carry the loan and start work before the first draw. A file that scrapes together the gap and nothing else is the one that stalls. Proof of funds, with clean documentation of where the cash came from, belongs in the file up front.

Where the General Rule Breaks

• First-time flipper. The 85% tier applies, so the gap is the largest. The top tier is reserved for experienced investors with documented completed projects.
• Optimistic ARV. If the appraiser disagrees, the 75% cap resets the loan.
• Rehab-heavy deal. A big budget raises project cost, and the cap can bind sooner.
• Marketing claims of 100% financing. These depend on a tier, a market, and a lender. The network has no true 100% purchase program.
• Gap or second-lien money. It can fill part of the gap, but it does not remove the cash requirement.
• Credit. A 620 minimum applies, with added conditions below 660. Underwriting stays asset-based, but credit and liquidity still shape the file.
• Loan size. Amounts run up to $5,000,000, with larger by exception.

Some lenders will take other collateral to cover a down payment. That is not a network program fact, so confirm it file by file.

What Does the Decision Look Like in Practice?

Start with your tier. Count documented completed projects, because that number moves the gap by several points of cost. Then check ARV against the 75% cap using a realistic budget, not a hopeful one. Then price the full cash worksheet, not just the gap.

Repeat flippers gain capital velocity. A higher tier ties up less cash per project, so the same capital can run more deals. Where the plan is to hold the building, many investors refinance out of the short-term loan into long-term DSCR financing once the property is stabilized, and Lendmire brokers that path. The complete DSCR loans guide covers how that long-term loan is reviewed on property-level rental income, subject to lender guidelines.

Tax treatment varies; consult a qualified professional.

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.

For more on how the cash side of a short-term loan gets built, see Lendmire’s piece How to Structure a Hard Money Bridge Down Payment on a 2-4 Unit.

About Lendmire

Lendmire (NMLS# 2371349) is a DSCR-focused mortgage broker that helps arrange investor financing across 41 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR eligibility is generally reviewed by the lender around the property’s rental income rather than personal income documentation, subject to lender guidelines, which works for self-employed investors, LLC operators, and portfolios above four financed properties. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Fannie Mae Selling Guide B4-1.2-01

2. Appraisal Colorado – Form 1025