The Quick Read: A hard money lender does not apply one fixed down payment percentage; it runs two tests, a cost test and a value test, lends the smaller result, and treats your down payment as whatever cost that loan leaves uncovered. On most 2-4 unit flips the cost test sets the number, and the after-repair value (ARV) cap takes over when the margin is thin.
- The cost test lends a percentage of project cost, which is purchase price plus rehab budget.
- The value test caps the total loan at a share of ARV, and the lower of the two loans controls.
- Across the network, flip leverage runs 85%, 90% or 93% of project cost depending on completed projects, always capped at 75% of ARV.
- Up to 100% of the rehab budget is released in draws after work is done, so it is not cash handed to you at closing.
- Points, closing costs, and early rehab spending sit on top of the down payment, so cash to close is larger than the equity gap.
What Does “Down Payment” Mean on a Hard Money Flip?
On a hard money flip, the down payment is a leftover, not a line item. The lender decides the maximum loan first. Your cash is the difference between that loan and the total cost of the project.
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.
A bank mortgage works differently. You pick a down payment percentage, and the loan follows. A flip loan is sized the other way around, from the project’s cost and its finished value.
That is why “how much down?” gets so many different answers. A lender quoting a headline leverage number is describing only one of its two tests. The second test can shrink the loan without warning if you have not run it yourself.
This article covers business-purpose flips on non-owner-occupied 1-4 unit properties. Owner-occupied 2-4 unit mortgages follow different down payment rules that do not apply to an investor flip. Five-plus unit buildings are valued on income and fall outside this discussion.
Key Terms Defined
Project cost: the purchase price plus the approved rehab budget. Lenders size the cost test against this total.
After-repair value (ARV): the estimated market value of the property once the work is finished. Hard money lenders usually base their value test on ARV, not today’s as-is value.
Loan-to-cost (LTC): the loan as a percentage of project cost. A 90% loan-to-cost means the lender covers 90% of purchase plus rehab.
Value cap: the maximum total loan as a percentage of ARV. Across the network, every flip tier is capped at 75% of ARV.
Rehab holdback: the part of the loan reserved for repairs. The lender releases it in draws as work is completed and inspected.
Equity gap: total project cost minus the loan. This is the closest thing to a true down payment.
Cash to close: the equity gap’s purchase-side cash plus points, fees, and closing costs due at the table.
How Does Underwriting Count It, Step by Step?
Underwriting follows four steps: establish cost and value, run the cost test, run the value test, and subtract the lower loan from cost. The formula in one line is down payment = project cost − the lower of (LTC % × cost) or (ARV cap % × ARV).
Step 1: Establish cost and value. You submit the purchase contract and a rehab scope with a line-item budget. The lender orders a valuation to set ARV. That may be an appraisal, a broker price opinion, or an in-house review, depending on the lender.
Step 2: Run the cost test. Across the network, leverage is tiered by documented completed projects. Investors with 5 or more completed projects reach 93% of project cost. Those with 2 or more reach 90%. Those with fewer than 2 sit at 85%. These figures vary by lender, property, and experience.
Step 3: Run the value test. The total loan, meaning the initial advance plus the rehab holdback, cannot exceed 75% of ARV at any tier. This is the cap that surprises first-time flippers.
Step 4: Take the lower loan. US Finance Calculators explains that lenders apply both limits and lend the lower result. Your equity gap is total cost minus that loan.
One more detail matters here. Up to 100% of the rehab budget is funded in draws against completed work. That figure is a share of the rehab budget, never a purchase leverage ratio. There is no program that finances 100% of the purchase.
What Does the Math Look Like When the Cost Test Controls?
The cost test controls whenever your total cost sits comfortably below the ARV cap. To show the mechanics without dollar amounts, the examples below express everything as a percentage of ARV. These are modeled assumptions, not market data.
| Deal (modeled) | Cost as % of ARV | Cost test | Value cap | Cash gap |
|---|---|---|---|---|
| Strong margin, 2+ projects | 75% | 67.5% of ARV | 75% | 7.5% of ARV |
| Same deal, first-time flipper | 75% | 63.75% of ARV | 75% | 11.25% of ARV |
| Thin margin, 2+ projects | 90% | Above the 75% cap | 75% | 15% of ARV |
In the first row, purchase is modeled at 60% of ARV and rehab at 15%. Total cost is 75% of ARV. A 90% loan-to-cost produces a loan of 67.5% of ARV, which sits under the 75% value cap, so the cost test controls. The equity gap is 7.5% of ARV, or 10% of project cost.
The second row is the same deal for an investor with fewer than 2 completed projects. At 85% of project cost, the loan falls to 63.75% of ARV. The gap grows to 11.25% of ARV. Experience, not the property, caused that change.
On the rehab side, those 15 points of ARV are funded in draws. Cash at the table is the purchase price minus the initial advance, plus fees. Many investors then front early repair costs and wait for reimbursement, which is why the same calculator page warns that you often need bridge cash to start work.
What Happens When the Value Cap Controls?
When purchase price plus rehab approaches ARV, the 75% value cap overrides the cost test, and your cash requirement jumps. The third row of the table shows it. Cost is modeled at 90% of ARV, with purchase at 75% and rehab at 15%.
At 90% of project cost, the cost test alone would land above the 75% value cap. The cap holds the loan to 75% of ARV instead. The gap is 15% of ARV, which equals about 16.7% of project cost, even though the investor sits in the 90% tier.
This is the thin-margin trap. The headline says 90% of cost, yet the effective financing on the deal is closer to 83% of cost. Cheap purchases with a modest ARV raise the cash you need, and a larger spread between cost and ARV lowers it.
The practical lesson is to run both tests on your own numbers before you bid. If the loan is going to be capped by value, you want to know that while you can still negotiate the price.
Why Is ARV the Swing Variable on 2-4 Units?
ARV carries the most uncertainty on duplexes, triplexes, and fourplexes because there are fewer comparable sales than for single-family homes. Fewer comps can mean a lower or less certain ARV, which means a smaller loan and more cash from you.
Homes.com notes that the sales comparison method carries real weight when valuing small multifamily. Appraiser Point adds that appraisals of 2-4 unit properties use both the sales comparison approach and the income approach, and that most lenders expect to see both.
Appraisers commonly report on Fannie Mae Form 1025, which includes sale comps and rent comps for small multifamily. That is only the name of the appraisal form. Hard money and DSCR loans are not agency products, and the form does not set your leverage.
Three habits help here. Pull comps for the same unit count, not just nearby single-family sales. Count rent support as a cross-check on value, since the income approach alone is not what drives the number. And underwrite your own ARV on the conservative side before the lender’s valuation arrives.
Occupancy matters too. If units are tenant-occupied during the rehab, the scope of work and the finished layout may look different from a vacant gut renovation. A lender reviewing a per-unit budget will want to see that the plan matches what the comps support.
Does Rehab Money Count Toward Your Down Payment?
Rehab money is financed, but it is not funded up front, so it does not reduce what you owe at closing in the way many beginners expect. Lenders hold the rehab budget in reserve and release it in draws after inspections show completed work.
That structure is why “they fund 100% of the rehab” does not mean “I put nothing toward the project.” The financed rehab share is real. It is also delayed, which means you carry labor and materials for a stretch before each draw arrives.
In many structures, your true down payment comes entirely out of the purchase price. The initial advance covers a percentage of what you pay the seller, and you cover the rest. The rehab holdback sits alongside, untouched until work is done.
This is also where a hard money lender counts down payment differently from a bank. A bank looks at one price and one loan. A flip lender splits the file into a purchase conversation and a rehab conversation, then reconciles them against the ARV cap.
What Else Is in Cash to Close?
Cash to close is larger than the equity gap, because points, closing costs, and early spending sit on top of it. Points and fees are separate from the down payment. Lenders usually collect them at closing, so they raise the cash you need on day one.
A realistic cash picture has these buckets:
- The purchase-side equity gap, meaning purchase price minus the initial advance.
- Origination fees and closing costs due at the table.
- Interest carry, since terms are interest-only and run 6 to 18 months with no prepayment penalty.
- Early rehab costs that you front before the first draw is released.
- Reserves, which vary by lender and loan size.
The same US Finance Calculators page treats the common 70% rule as a screening filter, not underwriting. It is a quick way to see whether a deal deserves a closer look. It does not tell you what the lender will actually lend.
What Counts as Your Cash, and What Will the Lender Want to See?
Lenders want to see that your cash is yours, that you can trace it, and that you will still have money left after closing. Expect bank or asset statements, an explanation for large deposits, and evidence of reserves. Reserve expectations vary by lender, leverage, and loan size.
Earnest money you have already paid usually counts toward your cash. Seller credits are different, because they reduce what you effectively put in, and lenders may treat them accordingly.
Gifted or borrowed funds are less settled. Policy varies by lender, and some programs limit them. Redfin lists a signed gift letter, a donor statement, and proof of transfer for gifts in the mortgage context. That is only an analogy for the paper trail, so ask your lender what it accepts before you plan around outside money.
Credit still matters at this stage. Across the network, 620 is the minimum score, with additional conditions below 660. First-time investors qualify at the lower leverage tiers. Underwriting stays asset-based, meaning it focuses on the property, the plan, and the exit.
Where Does the General Rule Break?
The two-test rule holds on most files, but a few situations push the result away from the simple picture.
Thin margins. When cost nears ARV, the 75% value cap controls and the stated cost leverage overstates what you get.
Large scopes. If the rehab budget is big relative to the purchase price, total cost climbs toward ARV faster. The value cap tends to bind sooner, and lenders scrutinize the budget more closely.
First-timers. With fewer than 2 completed projects, the lower 85% tier applies, so your cash requirement is higher on the same deal. Experience sets the tier, and the top tier is reserved for experienced investors.
Advertised ceilings. A lender advertising 90% financing is describing a cost-based tier, meaning 90% of project cost (the purchase price plus the rehab budget), not 90% loan-to-value. That figure can still be cut through the ARV cap or by sizing on a lower valuation. Read the term sheet for which base the percentage applies to.
Plain purchases without rehab. A bridge purchase with no repair budget is sized differently, at up to 80% of purchase price.
Refinances sit at a lower tier as well. Cash-out and rate-and-term refinances on hard money run up to 65% of value.
How Should You Decide Before You Bid?
Run a self-check on every deal before calling a lender. It takes five lines.
1. Write down purchase price, rehab budget, and your conservative ARV.
2. Add purchase and rehab to get total project cost.
3. Multiply cost by the tier that fits your completed projects: 85%, 90%, or 93%.
4. Multiply ARV by 75%.
5. Take the smaller result as your loan, then subtract it from cost to find your equity gap.
Then add points, closing costs, early rehab spending, and reserves to see true cash to close. If the answer is uncomfortable, adjust the purchase price, trim the scope, or bring in more documented experience. The thinner the spread between cost and ARV, the more your own cash decides the deal.
For a closer look at how unit count and leverage interact, Lendmire’s piece on whether a 2-4 unit flip needs a bigger down payment with hard money takes that question on directly.
Your exit also shapes the decision. A flip loan sized against a thin ARV can leave a weak refinance later, because the long-term loan is based on appraised value and rent. Many investors who plan to hold refinance out of hard money into long-term DSCR financing once the property is stabilized, and Lendmire brokers that path. Clearing 1.00 coverage is not the same as positive cash flow, since repairs, vacancy, and management sit outside the calculation. The complete DSCR loans guide covers how that exit is underwritten.
Tax treatment varies; consult a qualified professional before relying on any deduction.
Frequently Asked Questions
Do hard money lenders require a down payment on a 2-4 unit flip?
Yes, in practice. There is no true 100% purchase program, because the lender sizes the loan against cost and value, and you cover the gap. Across the network, the cost test runs 85% to 93% of project cost, so you cover at least the remainder, subject to lender guidelines and your experience.
Is the down payment based on purchase price or ARV?
It is the result of both. The cost test uses purchase price plus rehab budget, and the value test uses ARV. The lender lends the smaller loan, and your down payment is total cost minus that loan.
Why would my cash requirement be higher than the percentage I was quoted?
Usually the ARV cap is cutting the loan, or fees and early rehab spending are on top of the equity gap. A quoted 90% of cost can become a lower effective percentage when cost approaches ARV. Points, closing costs, and reserves also sit outside the down payment.
Does the lender fund the whole rehab at closing?
No. Up to 100% of the rehab budget is funded in draws against completed work, and the lender releases each draw after inspection. That means you often front early costs and wait for reimbursement.
Why do first-time flippers bring more cash?
Leverage is tiered by documented completed projects. With fewer than 2, the network’s tier is 85% of project cost, compared with 90% at 2 or more and 93% at 5 or more. Terms vary by lender, property, and experience, and nothing here is a commitment to lend.
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. The strongest flip files usually pair a conservative ARV with a spread wide enough that the cost test, not the value cap, sets the loan.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage focused on DSCR investor financing, helping arrange programs through wholesale and investor-lending channels in 41 markets, including Washington, D.C. DSCR loans are evaluated by the lender on property cash flow rather than personal income, subject to lender guidelines, supporting LLC closings and accommodating investors with four or more financed properties. Scotsman Guide Top Mortgage Workplace in both 2025 and 2026.
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References
1. US Finance Calculators: hard money real estate loan calculator
2. Homes.com: how to learn the market value of your multifamily property
3. Appraiser Point: multi-family appraisal
4. Redfin: mortgage down payment gift rules
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 Seasoning on a Flip · How a Hard Money Lender Counts Your Current Income · Hard Money Down Payment vs HELOC Draw for an Investor Purchase
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.