The Quick Read: A hard money lender sizes your loan against project cost and after-repair value, takes whichever limit is lower, and expects you to cover the gap in cash that you can document and that the lender will accept as yours. Your total cash need is bigger than the down payment alone.
- The down payment is the part of purchase plus rehab the lender does not fund. On many first flips it runs about 15% of project cost, and a thin-margin deal can push it higher.
- Hard money has no true 100% purchase program. The top leverage tier is reserved for experienced investors.
- Lender fees, closing costs, reserves, and early rehab spending sit on top of the down payment.
- Savings, partner capital, and private notes are the usual sources. Whether a lender accepts borrowed money depends on how it is structured.
- Every figure here varies by lender, property, and experience. Nothing here is a commitment to lend.
What the Down Payment Actually Is
The down payment on a hard money flip is the share of total project cost that the lender will not fund. Total project cost means the purchase price plus the rehab budget. You cover the difference with your own verified cash, or with money the lender agrees to count as yours.
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.
Hard money is short-term financing from private lenders, secured by the property itself. That is why the lender looks at the deal first. The property, the renovation plan, and the exit drive the decision. Your résumé matters mostly for how much leverage and what pricing you get. Connected Investors makes the same point about asset-based underwriting and notes that these loans often ask for a larger down payment than a conventional mortgage.
Here is a distinction that trips up first-timers. The down payment is equity. It buys you a stake in the project. Fees, reserves, and contractor deposits are separate costs, and they come out of the same bank account.
These are business-purpose loans for non-owner-occupied investment property. Because of that, they are reviewed differently from a standard owner-occupied mortgage.
How a Lender Sizes the Loan, Step by Step
Lenders compare two limits and use the lower one. Across the network Lendmire places files with, the first limit is a percentage of project cost, called loan-to-cost. The second is a cap on the loan as a percentage of after-repair value, or ARV. ARV is what the property should be worth once the renovation is finished.
Here is the sequence underwriting follows:
1. Add up project cost. Purchase price plus the rehab budget.
2. Apply the loan-to-cost tier. Leverage is tiered by documented completed projects: 85% of project cost with fewer than two, 90% with two or more, and 93% with five or more.
3. Apply the ARV cap. Every tier is capped at 75% of ARV.
4. Take the lower number. That is the loan. Project cost minus the loan is your down payment.
5. Split the funding. The lender funds the purchase portion at closing. Up to 100% of the rehab budget is held back and released in draws against completed work.
That last point surprises people. The rehab holdback is a rehab-budget figure, not a purchase loan-to-value number. You still front early renovation costs and get reimbursed after inspection.
Run the numbers on three modeled deals. These are illustrative assumptions, not market data. Call project cost 100 units.
- Roomy margin. ARV comes in at 140. The 75% cap allows 105, which sits above the 85% first-timer limit. The cost limit governs, and you cover 15% of project cost.
- Thin margin. ARV comes in at 108. The cap allows 81, which is below 85. The ARV cap binds, and your share rises to 19% of project cost.
- Experienced investor, thin margin. The 93% tier would allow 93, but the same 81 cap still applies. Experience did not help here, because the deal’s margin set the limit.
The takeaway: the deal moves your down payment as much as your track record does.
The Cash Stack Beyond the Down Payment
Your down payment is one line in a longer budget. A flip can be underwritable and still stall because the account balance falls short.
| Cash bucket | When it hits | What to know |
|---|---|---|
| Down payment | At closing | Project cost minus the loan |
| Lender fees | At closing | Often deducted from loan proceeds |
| Title and closing costs | At closing | Shown on the settlement statement |
| Reserves | Shown after closing | Lenders often want proof of several months of interest |
| First-draw cash | After closing | You pay early rehab costs, then request a draw |
| Contractor deposit | Before work starts | Plus a contingency cushion |
Reserves are money you show, not money you spend. A lender wants to see that you can carry interest payments if the project drags. First-draw cash is different. It leaves your account on day one and comes back only after an inspection signs off on the work.
Your title company will prepare a settlement statement showing the cash due at closing, and that amount is typically wired or paid by cashier’s check. Ask for a preview early. A modeled picture helps: when lender fees come out of loan proceeds, they still reduce what you actually receive, so your cash need is larger than the headline down payment suggests.
Where the Down Payment Money Can Come From
Most first-time flippers use personal savings, partner capital, or a private note. Each source has a different cost and a different level of lender comfort. The right one depends on what you own, what you have saved, and whom you can bring in.
| Source | How it works | Main risk |
|---|---|---|
| Savings | Your own verified cash | Drains your reserves |
| Partner capital | A partner funds part of the equity | Needs a written agreement |
| Friends and family | Gift or documented loan | Unclear terms strain relationships |
| Home equity line | Borrow against a home you own | Your home secures the debt |
| Gap or second-lien money | Junior debt behind the first loan | The first lender must allow it |
| Private unsecured note | A personal note, no lien | Adds a payment you must carry |
Savings is the cleanest source and the one lenders understand best. If you lack enough, the next question is whether outside money is equity or debt. Partner capital that buys an ownership stake is typically easier for a lender to accept than a loan secured against the flip itself.
The short version is that partners cost you a share of the profit, while borrowed money costs you a payment.
Retirement accounts and similar sources carry their own rules. Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Using a Home Equity Line as Your Down Payment
Some investors with a home they own draw on a line of credit against that home. It is a real option, but it stacks risk. A home equity line of credit is secured by your home. It has a draw period, and the lender can freeze or reduce the line under certain conditions.
Think about what that means in the middle of a flip. If the line is frozen while you still need cash for the rehab, you cannot refill the account. A line and a home equity loan are both second mortgages paid on top of your first mortgage, and the lender can take your home if you do not repay either one.
So you would be carrying two obligations at once: the line payment on your home and the interest on the hard money loan. If the flip stalls, both keep running. Confirm the hard money lender’s position on borrowed funds before you draw anything, and size the draw as if the project will run long.
Will the Lender Accept This Money?
Lenders care less about the amount than about the source. A clean answer to where did this money come from matters as much as the balance. Funds that have sat in your account are easy to document. Fresh transfers invite questions.
Assemble proof of funds before you make offers, not after. That means the down payment, reserves, and contractor deposit all in one view. Statements should match what you plan to show at closing.
Borrowed money needs extra care. Some lenders will not count funds you borrowed on a credit line or card as your equity. Others will, with conditions. Ask first.
Gap funding and second liens are where deals get stuck. The key fact is that the first-lien lender must allow junior debt, and many do not. A second lien can also freeze rehab draws, because the first lender sees it during a lien search and may pause. Check permission before you sign anything with a gap funder. Lendmire’s piece Larger Hard Money Loan vs Gap Funding for a Flip’s Down Payment covers that tradeoff in depth.
Partners need paperwork too. If a partner contributes cash, document the amount, the ownership split, and who decides what. A lender may ask to see it.
Shrinking the Down Payment Through Deal Selection
Buying further below ARV is the biggest lever on your cash need. Because the 75% cap binds on thin-margin deals, a wider spread between cost and ARV can bring your share back down to the base tier. A narrow spread pushes it up.
So before you chase funding sources, test the deal. Ask whether the cost limit or the ARV cap will govern, and by how much. A deal that fits the cost limit with room to spare reduces both your down payment and your risk.
Experience still matters, just differently than people assume. Many lenders fund first-timers at lower leverage rather than refusing them. The 85% tier is where a first-time investor typically starts across the network, and experience counted over a lookback window can move you up. Credit matters as well. A 620 score is the minimum, with extra conditions below 660, and underwriting remains asset-based.
Where the General Rule Breaks
The standard structure covers most first flips. Several situations push you off it.
A 100% claim. Hard money has no true 100% purchase program. Where you see one advertised, read the fine print. It usually means a strong deal, a seasoned borrower, and financing of the rehab budget through draws. Even then, you still need closing cash, reserves, and first-draw money.
A binding ARV cap. As the modeled scenarios show, a thin margin can erase the benefit of a higher tier. Experience does not override the cap.
Delayed or reduced draws. Inspections can be missed, and repairs discovered after you submitted the scope may not be credited. Hold a contingency that lets you keep paying contractors while you wait.
Gap funding limits. There is no standard outlet for second-position money. Some investors turn to a private unsecured note instead, which avoids a lien but adds a payment.
Property and size limits. The program covers non-owner-occupied residential property of one to four units. Loans run up to $5,000,000, with larger sizes by exception. Terms are 6 to 18 months, interest-only, with no prepayment penalty. All of this varies by lender, property, and experience.
A Practical Sequence
Here is how an investor with no cash yet can work toward a funded closing.
1. Test the deal first. Estimate project cost and ARV, then find which limit governs.
2. Total your cash buckets. Add the down payment, fees, closing costs, reserves, first-draw cash, and a contractor deposit.
3. Pick a source. Match it to your situation using the guide below.
4. Season and document. Move funds early so they sit in your account and show a clear trail.
5. Confirm acceptance. Ask the lender whether it counts the source, especially borrowed or partner money.
6. Line up the exit. Know how you will sell or refinance before you buy.
And here is how the decision looks by situation:
- Homeowner with equity. A credit line is possible, but size it conservatively and confirm lender acceptance.
- Saver with a modest balance. Pick a smaller deal or one with a wider spread, so the down payment and the reserves both fit.
- Someone with partners. Structure the partner as an equity holder and put it in writing.
- Someone with almost nothing. Slow down. Build cash first, because a stalled first flip costs more than a delayed one.
What Happens If the Flip Runs Long
Terms run 6 to 18 months, so your exit has to be planned at the start. A flip that overruns still owes interest each month, and any outside financing on your down payment keeps accruing too. This is where cheap-looking funding sources become expensive.
Stress the plan before you buy. Assume the rehab takes longer than the contractor says and the sale takes longer than your agent says. Then check whether your reserves and your down payment source can survive both.
If you plan to hold the property as a rental instead of selling, many investors refinance out of hard money into long-term DSCR financing once the property is stabilized. Lendmire brokers that path. A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. Lendmire’s complete DSCR loans guide walks through how that works.
Key Terms Defined
Draw: A release of rehab money from the lender after a portion of the work is completed and inspected.
Holdback: The part of the loan set aside at closing for renovation costs, released later through draws.
Junior lien: A loan secured behind the first lender, which gets repaid second if the property is sold or foreclosed.
Proof of funds: Bank statements or similar records that show you have the cash to close and to carry the project.
Reserves: Cash a lender wants to see in your account after closing, usually measured in months of interest.
Seasoning (of funds): How long money has been in your account. Older funds are easier to document than fresh transfers.
Frequently Asked Questions
Can I flip with none of my own money?
Not in a way that holds up under normal underwriting. Hard money has no true 100% purchase program, and even the highest tier is reserved for experienced investors on strong deals. You still need cash for closing costs, reserves, and early rehab spending. Money you borrow elsewhere is a different matter, and lenders may or may not count it.
How much cash should I have before I start?
Plan for more than the headline down payment. On many first flips the down payment is about 15% of project cost, and a thin ARV margin can push it higher. Add lender fees, closing costs, reserves, a contractor deposit, and first-draw cash. Exact amounts vary by lender, property, and experience.
Can I use a home equity line for the down payment?
It is possible, but it carries real risk. Your home secures the line, the lender can freeze it, and you carry both payments if the flip runs long. Ask the hard money lender whether it accepts borrowed funds before you draw.
Can a private lender or partner cover the down payment?
Often yes, if the structure is clear. Partner equity is usually easier for a lender to accept than debt secured against the project. A second lien is harder, because the first-lien lender must allow it, and many do not.
Do reserves count toward the down payment?
No. Reserves are cash you show after closing to prove you can carry interest. The down payment is equity paid at closing. They come from the same pool of money, so you need both.
Running the Numbers on Your First Flip
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. As a broker, Lendmire arranges these loans through select lenders in its wholesale network, across 41 markets, including Washington, D.C., subject to lender guidelines.
The deals that survive a first flip tend to be the ones where the spread between cost and ARV was wide enough that the down payment problem mostly solved itself.
For current hard money guidelines and terms, see Lendmire’s fix-and-flip hard money down payment versus partner cash comparison.
About Lendmire
Lendmire, NMLS# 2371349, is a non-QM mortgage broker serving real estate investors in 41 markets, including Washington, D.C., through DSCR investor loan programs. Qualification is generally reviewed around the subject property’s rental income, not the borrower’s W-2 history — a practical fit for LLC-titled portfolios and self-employed investors. All scenarios remain subject to lender review and program guidelines. Two consecutive Scotsman Guide Top Mortgage Workplace recognitions (2025, 2026).
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References
1. Connected Investors: Hard Money Loans Guide
2. CFPB: What Is a Home Equity Line of Credit (HELOC)?
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How a Hard Money Lender Counts a Seller-Financed Down Payment · How a Hard Money Lender Sets the Down Payment on a Condo Bridge Loan · 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.