The Quick Read: The lender runs two tests on your deal, a share of total project cost and a cap tied to the finished value, then funds the lower result. Your down payment is whatever project cost is left over once that smaller loan is subtracted, which is why two buyers of the same house can bring different amounts of cash.
- Down payment is not a fixed percentage of the purchase price. It is project cost minus the loan, and the loan is the lower of two tests.
- Across the wholesale network Lendmire places files with, fix-and-flip loans typically fund 85% of project cost with fewer than 2 completed projects, 90% of project cost at 2 or more, and 93% of project cost at 5 or more, with every tier capped at 75% of after-repair value.
- Rehab money usually arrives in draws after work is done, so your cash need is larger than the down payment alone.
- Terms vary by lender, property, and experience, and nothing here is a commitment to lend.
Key Terms Defined
Seven terms do most of the work here. Each gets one plain definition.
- Project cost: the purchase price plus the rehab budget. This is the base most flip lenders measure against.
- Loan-to-cost (LTC): the loan divided by project cost. A loan of 85% of project cost means you bring the other 15%.
- After-repair value (ARV): what the property should be worth when the work is finished, supported by comparable sales.
- ARV cap: a ceiling on the total loan, including financed rehab, as a share of ARV.
- Draw: a release of rehab money from the lender after a stage of work is completed and inspected.
- Cash to close: every dollar that leaves your account at the closing table, not just the down payment.
- Business-purpose loan: a loan made for an investment property you will not live in.
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.
Why Does a Hard Money Lender Want Your Cash at All?
A hard money lender wants your cash because the loan is secured by a property that does not yet exist in its finished form. Your own money in the deal keeps you committed, absorbs surprises, and gives the lender a cushion if the project stalls or the value comes in light.
Hard money loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. The lender cares about the property, the plan, and the exit more than your pay stubs.
That asset focus does not mean zero cash. It means the lender sizes risk by the deal. A first flip carries execution risk: a first-time investor has no record of finishing on budget. The lender covers that risk by lending a smaller share of cost until you have completed projects on your record.
You may also have seen advertising for a hundred percent financing. There is no true 100% purchase program in the network. The real structure is narrower: up to 100% of the documented rehab budget can fund through draws against completed work, while the purchase itself is financed at a share of project cost. Nav explains that full financing in this market refers to cost, and only when the total stays inside the lender’s ARV cap. That cap is the piece beginners miss.
How the Lender Sizes the Loan, Step by Step
The lender builds your loan in a fixed order: collect the deal package, check the values, apply the cost-based tier, apply the ARV cap, and take the lower number. Your down payment falls out at the end. Here is the sequence as it plays out on most files.
1. You submit the deal package. It includes the purchase contract, the scope of work with a line-item rehab budget, your ARV estimate with comparable sales, and your exit plan.
2. The lender checks the values. An appraisal or broker price opinion tests both the as-is value and the ARV. Lenders commonly lend against the lower of the purchase price or the as-is value. If the as-is value comes in under your contract price, expect to bring more cash or renegotiate.
3. The lender applies the cost-based tier. The formula is loan divided by purchase plus rehab, as laid out in Nav’s explainer on 100% financing. In the network, the tier depends on your documented completed projects: 85% of project cost with fewer than 2, 90% of project cost with 2 or more, and 93% of project cost with 5 or more.
4. The lender applies the ARV cap. The total loan, including any financed rehab, cannot exceed 75% of ARV in the network’s fix-and-flip program. Market writeups put the common range at 70% to 75%. The network figure sits at the top of that range.
5. The lender takes the lower result. A practitioner walkthrough on Faro Labs’ hard money calculator page describes the same two-test logic: run both, then lend the smaller answer. That smaller answer is your loan.
6. Your down payment is the difference. Project cost minus the loan equals the cash you bring toward the deal itself.
The key is step five. Most first-time flippers assume only the percentage of cost matters. The ARV cap often decides the outcome, and it usually decides it against the buyer who overpaid or who is working with a thin spread between cost and finished value.
Worked Example: When Each Test Governs
The tier governs on a well-bought deal, and the ARV cap governs on a tight one. The scenarios below use modeled assumptions, expressed as percentages of ARV rather than dollar amounts, so you can see the logic without anchoring to any one price.
Assume a first-time investor with fewer than 2 completed projects, so the 85% of project cost tier applies. The ARV cap is 75%.
| Scenario | Project cost as % of ARV | Tier loan as % of ARV | Which test governs | Your cash, % of project cost |
|---|---|---|---|---|
| Well-bought deal | 80% | 68% | Cost tier | 15% |
| Tight spread | 95% | 80.75% | ARV cap (75%) | About 21% |
| Experienced (90% tier) | 80% | 72% | Cost tier | 10% |
Read the middle row carefully. At a 95% project-cost-to-ARV ratio, 85% of cost would be a loan equal to 80.75% of ARV. That exceeds the cap. The lender trims the loan to 75% of ARV, and your cash jumps from 15% of project cost to about 21%. Same borrower, same tier, six extra points of cash, purely because the spread was thin.
The bottom row shows what experience does. At the same 80% project cost, the 90% tier loan lands at 72% of ARV, still under the cap, so the borrower’s cash drops to 10% of project cost.
The Low-ARV Stress Test
Now test what happens when the lender’s ARV is lower than yours. Say your project cost is 85% of your own ARV estimate. At the 85% tier, the loan is about 72% of your ARV, safely below the 75% cap, so you bring 15% of project cost.
Suppose the lender’s valuation comes in 10% below yours. The cap now works out to 67.5% of your original ARV estimate, which is below the tier loan. The cap takes over. Your cash rises to about 21% of project cost, with no change to the purchase price or the rehab budget. A low ARV does not just hurt your profit. It shrinks the loan.
That is why you should stress your own comps before you write an offer, and why a conservative ARV is the safer way to plan the cash you need.
What Moves Your Number
Four things move your number: your completed-project count, your credit profile, the property itself, and the scope of work. Experience mostly changes leverage rather than eligibility. A first flip usually starts at the lower tier, and the tier steps up as you document completed projects.
Experience. The tier ladder is the clearest lever. Fewer than 2 completed projects means the 85% of project cost tier. Reaching 2 completed projects opens 90% of project cost. Five or more reaches 93% of project cost. The top tier is reserved for experienced investors, and it does not apply to a first deal. Plan your first flip at the lowest tier and treat anything better as a bonus.
Credit. The network minimum is a 620 score, with additional conditions below 660. Underwriting stays asset-based, meaning property, plan, and exit, but credit still shapes the conditions attached to a file. These figures vary by lender, property, and experience.
Property. Hard money in this network covers non-owner-occupied residential property of 1 to 4 units. Ground-up construction goes up to 10 units. Commercial, industrial, land or lots, hospitality, and owner-occupied property are not offered. If the property type is outside the sheet, no amount of down payment changes that.
Scope. A heavy rehab budget raises project cost, which raises the cash you bring at any given percentage. It also pushes project cost closer to the ARV cap. A big scope on a modest finished value is the classic setup for the cap to bind.
Loan size matters less for a first flip, but for reference, loans run up to $5,000,000, with larger amounts by exception and smaller balances varying by lender.
Where the General Rule Breaks
A few edge cases change the arithmetic.
- Bridge purchases with no rehab. Without a rehab budget there is no project cost beyond the purchase. These loans run up to 80% of purchase price, not a cost-based tier.
- Refinances. A cash-out or rate-and-term hard money refinance runs up to 65% of value. That is a value-based figure and sits well below the flip tiers.
- Gap or second-lien money. A gap loan sits behind the first lien, and many first lenders do not allow one. Check this before you plan to cover your down payment with a second loan.
- Cross-collateral. Some structures require additional collateral when leverage is pushed high. That is a negotiation point, not a default.
- Borrowing less on purpose. A first-timer sometimes gets cleaner terms by requesting less than the maximum. A smaller ask can reduce the lender’s worry, and it leaves a cushion against a low ARV.
- Cost tiers are not value limits. The 85%, 90%, and 93% tiers are shares of project cost only. The 75% ARV cap applies on top of them as a separate limit, and the lower result wins.
Down Payment Versus Total Cash to Close
Your down payment is only one line in the cash you actually need. Budget for the whole stack, because beginners who plan around the down payment alone are the ones who get surprised at the closing table.
| Cash item | What it covers | Who sets it |
|---|---|---|
| Down payment | Project cost minus the loan | Tier and ARV cap |
| Lender fees | Origination and processing | Varies by lender |
| Third-party costs | Appraisal, title, recording | Vendors |
| Prepaids | Insurance and interest collected up front | Lender and insurer |
| Reserves | Cash the lender wants to see after closing | Varies by lender |
| First contractor money | Deposits before draws start | Contractor |
The settlement statement from the title company shows the final closing figure. Ask for an estimate of it before you go under contract, not after.
Short holds make fixed costs hurt more. Lender fees and closing costs are paid up front whether the project runs nine months or finishes early, so a short flip can still carry a heavy upfront cash load. The Faro Labs calculator page is a useful illustrative place to see how those costs stack against profit, though the figures in any calculator are estimates, not quotes.
Rehab Draws and Working Capital
Rehab money rarely arrives at closing. The lender typically holds the rehab budget back and releases it in draws after completed work is inspected. In the network, up to 100% of the documented rehab budget can fund this way, and that is a rehab-budget figure, never a purchase leverage figure.
This creates a working-capital gap. Draws act like reimbursements. You pay for the work, the inspector confirms it, and then the lender releases the money. Many contractors ask for a deposit before they start, and that deposit comes from your pocket.
Experienced borrowers sometimes negotiate advanced draws. First-timers generally should not count on them. Keep enough cash on hand to cover the first stage of work plus a cushion for the delay between finishing a stage and receiving the draw.
Loan terms run 6 to 18 months, interest-only, with no prepayment penalty. Interest-only keeps the carry lower than a fully amortizing loan, but the cash you bring at the start still matters most.
Where Down Payment Money Comes From
Lenders want the money to be yours, documented, and sitting in an account before closing. Savings are the cleanest source. Partner cash can work, but it adds a second party to the deal, and the lender will want to understand who owns what.
Whatever the source, expect to document where the funds came from. Recent large deposits with no paper trail draw questions. Move money into your account early and keep the statements.
What If the Numbers Do Not Work?
If your cash need is bigger than your bank balance, you have five practical levers: lower the offer, trim the scope, request a smaller loan, add a partner with documented funds, or pick a different deal. Of those, lowering the offer is usually the strongest because it helps both tests at once. A lower price shrinks project cost and improves the ratio of cost to ARV.
Trimming scope helps too, but only if the cuts do not drag the finished value down with them. Cutting the kitchen to save cash and then losing ARV can leave the cap binding anyway.
Think about the exit before you close. The short-term note matures in 6 to 18 months, and you need a plan for it. If you sell, the exit is the resale. If you keep the property as a rental, many investors refinance out of hard money into long-term rental financing once the property is stabilized. A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. Lendmire’s complete DSCR loans guide explains how that works.
Tax treatment varies; consult a qualified professional.
Questions to Ask Before You Write the Offer
Use this list with any lender before you are under contract.
- Which cost tier would my file land in with my completed-project count?
- What ARV cap applies, and how is ARV determined on this deal?
- Does the lender lend against the lower of purchase price or as-is value?
- Is the rehab fully financed through draws, and what must I fund up front?
- What is my total estimated cash to close, including fees and reserves?
- What documentation does the lender want for my down payment funds?
- What happens to my cash if the lender’s valuation comes in below mine?
Next Step
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. Lendmire is a mortgage broker arranging financing through select lenders in its wholesale network, with programs across 41 markets, including Washington, D.C. You can reach the team at 828-256-2183 or request a quote.
Frequently Asked Questions
Do I always need 15% down on a first flip?
No. Fifteen percent of project cost is what the 85% tier implies, but it is a floor under good conditions, not a guarantee. When the ARV cap binds, because the spread is thin or the lender’s valuation is low, your cash can rise well above that. Terms vary by lender, property, and experience.
Can the rehab budget be fully financed on a first flip?
Up to 100% of the documented rehab budget can fund through draws, but it is not paid at closing. You still bring the down payment on the purchase, and the total loan must stay inside the 75% of ARV cap. Many first-timers also need cash for contractor deposits before the first draw.
What happens if the lender values the house lower than I do?
The cap shrinks with the valuation, so the loan shrinks too. In the stress test above, a valuation 10% below the investor’s estimate raised cash needed from 15% to about 21% of project cost. Build your plan on a conservative ARV so a lower number does not break the deal.
Does my credit score change how much down I need?
Credit affects the conditions on the file more than the tier itself. Underwriting stays asset-based, so the property, the plan, and the exit carry most of the weight.
Is borrowing less than the maximum a good idea on a first flip?
Often, yes. A smaller loan request gives you a buffer if the valuation comes in lower than expected, and it can simplify the lender’s review. The tradeoff is more of your own cash in the deal, so weigh it against what else that cash could do.
For a related angle on putting your own property equity toward the deal, see Lendmire’s piece How a Hard Money Lender Counts Equity as a Flip Down Payment.
About Lendmire
Lendmire (NMLS# 2371349), a non-QM mortgage broker serving investors in 41 markets including Washington, D.C., helps structure DSCR scenarios commonly evaluated around a property’s rental income rather than personal income paperwork, subject to lender guidelines. A Scotsman Guide Top Mortgage Workplace in 2025 and 2026, Lendmire places loans through wholesale investor lenders and is not a direct lender.
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References
1. Nav: Hard Money Loans and 100% Financing
2. Faro Labs: Hard Money Loan Calculator
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 Sizes a Bridge Loan for a First-Time Investor · How a Hard Money Lender Counts Equity as a Flip Down Payment · How a Hard Money Lender Counts a Seller-Financed Down Payment
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.