The Quick Read: Usually not, because a hard money lender sizes its loan on the property and expects you to bring real cash, and a seller’s note counts toward total leverage, so it rarely reduces what you must put in; the one exception is a seller second that the first-lien lender knows about, approves in writing, and counts toward its combined limit. The hard money label matters less than one question: will the first-lien lender allow a second lien behind it?
- A seller note is a second loan on the property, and the first lender adds it to its leverage math.
- A seller credit is not a seller-financed down payment. Credits typically offset closing costs, not equity.
- Hard money has no true 100% purchase program. Leverage varies by lender, property, and experience.
- An undisclosed second behind a hard money first is a misrepresentation risk. Skip it.
- Portfolio and commercial lenders are more likely than most to entertain a disclosed seller second.
What Does “Seller Financing the Down Payment” Actually Mean?
It means the seller accepts a promissory note from you for part of the price instead of cash. The seller’s note is secured by its own lien on the property, usually behind your main lender.
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.
Per Nolo’s overview of seller financing, the buyer and seller sign a promissory note with the loan terms and record a mortgage or deed of trust. That recorded lien is the part lenders care about.
Say you want to buy a rental at a negotiated price and the seller agrees to carry part of it. The seller gets most of the price in cash at closing and holds a smaller note. You pay less cash at the table, but you also owe a second payment each month.
This is different from a seller credit. A credit lowers what you pay at closing, but the money never turns into your equity.
Why Does the First Lender’s Answer Decide Everything?
Because the hard money lender writes the first loan and sets the rules for everything recorded behind it. Lenders size the loan against the property’s value or the project’s cost, and they want your own cash in the deal.
When a seller note sits behind the first lien, lenders typically count both loans together. That total is called combined loan-to-value (CLTV), and most lenders cap it. Once the cap is reached, the seller’s note takes room from the first loan, so it cannot shrink the cash you owe. You still need the remaining equity.
Here is a modeled example, using percentages only. Say a bridge purchase has no rehab. Hard money bridge purchases run up to 80% of the purchase price, though the real figure varies by lender, property, and experience. Assume the lender applies that limit to all liens combined.
- First lien: 70% of the purchase price.
- Seller second: 10% of the purchase price.
- Your cash: 20% of the purchase price, plus closing costs.
You need the same 20% cash you would need with no seller note. Only the holder of the paper changed. Less cash out of pocket happens only when a lender’s combined limit allows it, and that is lender-specific.
Fix-and-flip files work on loan-to-cost, meaning the loan is measured against total project cost instead of purchase price. Leverage typically runs 85% of project cost with fewer than two completed projects. It runs 90% at two or more and 93% at five or more, and every tier is capped at 75% of after-repair value. The rehab budget can fund up to 100% in draws against completed work, but that is a rehab-budget figure, not a purchase LTV.
Which Structures Can Work, and Which Usually Don’t?
Most workable versions involve a disclosed junior seller note. The ones that fail tend to skip the lender’s consent or exceed leverage limits.
| Structure | First lender’s consent? | Main risk |
|---|---|---|
| Seller second behind a hard money first | Yes, in writing | Combined cap leaves you the same cash |
| Seller credit toward closing | Yes, as a concession | Cannot fund the down payment |
| Hard money second behind a seller first | Yes, and the lender must accept a junior lien | Many hard money lenders won’t |
| Undisclosed second recorded later | No, and that is the problem | Default and misrepresentation exposure |
The wraparound is a variant. The seller keeps an existing first mortgage, and a new note wraps around it. A lender funding the down payment in that structure sits in third position behind both. That means it must be willing to hold a junior lien, and many hard money lenders are not.
Portfolio lenders and commercial lenders keep loans on their own books, so they set their own policy on subordinate financing. They are the most likely to say yes to a disclosed seller second. Larger institutions that sell or securitize loans tend to say no.
What Will the Lender Want to See in Writing?
Expect documents that show the real price, the real deal, and every lien. Lenders have been burned by inflated-price seconds that existed only to hide a buyer’s lack of equity, so they read these files closely.
A typical package for a disclosed seller second includes:
- A signed purchase contract that states the true price and the seller carryback.
- The seller note, with its payment terms, maturity, and payoff at sale.
- A mortgage or deed of trust for the seller’s lien, ready for recording.
- A subordination agreement, which places the seller’s lien behind the first lender’s.
- A settlement statement matching the contract, so title and the lender see the same numbers.
- Proof of your own cash and reserves, since the seller note does not replace them.
Your closing attorney or title company should coordinate recording order. Lien position follows recording order, not loan size, unless a subordination agreement changes it.
Seller terms matter too. A seller note that demands a large monthly payment, balloons soon, or must be paid off at sale can sour the first lender. Related-party and non-arm’s-length sales are a common hard stop, because the price may not reflect market value.
What About the Federal Due-on-Sale Law?
It protects less than investors assume. A due-on-sale clause lets a lender call the loan if the property, or an interest in it, transfers without consent. 12 U.S.C. § 1701j-3 defines the clause and, in subsection (d)(1), bars enforcement when a borrower creates a subordinate lien that does not transfer occupancy rights.
Two catches follow. First, the exception covers residential property with fewer than five units, and Miller, Miller & Canby’s explainer notes that commercial property falls outside it. Second, Foust & Foust’s commentary frames the exception around homeowners, not investors running rentals.
Even where the statute might apply, the first lender’s own loan terms and underwriting policy decide the deal in practice. A law that limits a lender’s right to call the loan does not oblige that lender to approve your leverage. Have a real estate attorney review any structure that adds a lien.
Why Not Just Close First and Add the Seller Note Quietly?
Because it risks default on the first loan and misrepresentation on your application.
An undisclosed second does more than break a covenant. It means the lender sized the loan on false information about your equity. That puts you at risk if the first loan goes bad, and it puts the seller’s note at risk too.
A related point: the lender’s leverage cap exists to keep your cash in the deal. A hidden note that removes your equity defeats the purpose of the cap. If the structure only works when nobody knows about it, it does not work.
How Do You Test Feasibility Before Making an Offer?
Ask the first lender before you negotiate with the seller. The lender’s policy sets the limits, and the seller’s flexibility is secondary.
1. Ask whether the lender allows a subordinate lien at all, and whether it requires written consent. 2. Ask what the combined leverage limit is, and whether it applies to purchase price or project cost. 3. Ask what the lender needs to see: the note, the subordination, and the contract language. 4. Confirm the term. Hard money runs 6-18 months and is interest-only, so a seller note should not mature before your exit. 5. Check your own cash and reserves against the remaining equity requirement. 6. Bring the seller in last, with terms the lender has already blessed.
Credit matters on the lender’s side as well. Hard money typically needs a 620 minimum score, with added conditions below 660, though underwriting stays asset-based and depends on the property, the plan, and the exit. Collateral is non-owner-occupied residential property of one to four units, and ground-up construction can go to ten.
Lendmire’s team arranges these loans through its wholesale network, and policy on subordinate liens varies from lender to lender. A broker who sees several lenders’ rules can tell you which ones even consider a seller second. Lendmire’s piece Seller Financing vs Cash Down Payment for a Hard Money Flipper goes further into that tradeoff.
What Does a Seller Second Do to Your Cash Flow?
It adds a payment. Most seller notes carry their own monthly payment or accrue toward a balloon, which cuts the rental’s net cash flow and can strain your reserves. Hard money is interest-only, so the property carries two loans at once while you rehab or stabilize it.
The seller has a stake too. A seller who carries a note is betting on your execution, and a default on your first loan can wipe out a junior lien in foreclosure. Sellers who understand that tend to ask for more security or a higher price.
Tax treatment varies; consult a qualified professional before signing.
Key Terms Defined
Combined loan-to-value (CLTV): the total of every loan against the property, divided by its value or price.
Loan-to-cost: the loan amount measured against total project cost, used on fix-and-flip files.
Lien position: the order in which lenders get paid if the property is sold at foreclosure.
Subordination agreement: a signed document that moves one lender’s lien behind another’s.
Seller carryback: a note in which the seller finances part of the price.
Seller credit: a price concession that offsets closing costs, not a loan.
What Are the Alternatives If the Structure Won’t Work?
You have a few better-trodden paths. Each trades something, and none is free.
- Pull equity from a rental you already own. A hard money cash-out refinance goes up to 65% of value. A DSCR cash-out refinance on a standard rental tops out around 75% LTV, with about six months of seasoning as the common expectation. Select lenders vary.
- Bring in a partner. A capital partner supplies the cash the lender wants to see, and the partner’s share replaces the seller’s note.
- Negotiate price instead. A lower price shrinks the dollar equity you need, with no extra lien.
- Use seller credits where they fit. They help with closing costs, so you keep more of your own cash for the down payment. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Many investors who start with hard money refinance into long-term rental financing once the property is stabilized. Lendmire brokers that move, and the complete DSCR loans guide explains how rent coverage drives that loan. Clearing 1.00 coverage only means the rent covers the payment. It is not the same as positive cash flow, since repairs, vacancy, and management sit outside the calculation.
Frequently Asked Questions
Can a seller fund the whole down payment?
Rarely, and not on typical hard money files. Lenders want your own cash in the deal, and no true 100% purchase program exists. A seller second can reduce your cash only if the first lender’s combined limit allows it.
Does the hard money lender have to know about the seller note?
Yes. The lender counts every lien in its leverage math, and the loan documents typically prohibit additional liens without consent. Hiding a second puts you at risk of default and misrepresentation.
Can the seller be in second position?
Yes, when the first lender consents in writing and the seller’s lien is recorded behind the first lien. If the seller already holds a note and a new first loan goes on top, the seller usually has to sign a subordination agreement.
What if the seller still has a mortgage on the property?
That mortgage’s own terms matter. A wraparound structure leaves the seller’s loan in place, and it needs lender cooperation to work. Either way, a hard money lender typically wants first position and may refuse a junior role behind an existing loan.
Does flipping versus renting change the answer?
The leverage math changes, but the consent question does not. Fix-and-flip files size on loan-to-cost and after-repair value, while bridge purchases size on purchase price. In both cases, the first lender decides whether a seller second fits.
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. Call 828-256-2183 or request a quote. Lendmire is a broker arranging financing through select lenders in its wholesale network across 41 markets, including Washington, D.C. Programs vary by lender, property, and experience, and nothing here is a commitment to lend.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage brokerage specializing in DSCR investor loans, helping arrange financing across 41 markets, including Washington, D.C., through wholesale and investor-lending channels. The model centers on property-level rental income reviewed by the lender rather than W-2 documentation, subject to lender guidelines, suiting entity-owned and multi-property investors. Lendmire holds Scotsman Guide Top Mortgage Workplace recognition for 2025 and 2026.
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References
1. Nolo – Seller Financing for Home Sales
2. 12 U.S.C. § 1701j-3 – Cornell Legal Information Institute
3. Miller, Miller & Canby – Garn-St Germain Act
4. Foust & Foust – Due-on-Sale Exceptions
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 to Replace Seller Financing With a Hard Money Loan on a First Flip · Hard Money Bridge Down Payment Requirements for Out-of-State Investors · Hard Money Maximum Loan Amount Requirements for a Flip
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.