Hard money lenders almost always require a down payment, and it's usually larger than what a bank asks for

Yes, hard money lenders require a down payment. Most ask for 20 to 30 percent of the property's purchase price, though some will go as low as 15 percent or as high as 40 percent depending on the property condition, your experience, and market conditions. Unlike traditional banks, hard money lenders focus on the property itself as collateral rather than your credit score, so the down payment protects their investment if the deal goes wrong.

The down payment is non-negotiable in most cases. Hard money lenders are private individuals or companies lending their own capital, not federally insured deposits. They move fast—often closing in 7 to 14 days—but that speed comes with higher interest rates (typically 8 to 15 percent) and the requirement that you bring real money to the table upfront.

Key Takeaways

  • Hard money lenders typically require 20 to 30 percent down, which is higher than conventional mortgages but lower than some private lending arrangements.
  • The down payment amount depends on the property's condition, your track record as a borrower, and current market conditions in your area.
  • Down payment funds must come from your own resources—hard money lenders do not allow you to borrow the down payment from another source.
  • Some lenders will negotiate the down payment percentage if you have a strong exit strategy or significant experience in real estate investing.
  • The down payment is held in escrow until closing and applied to the purchase price, reducing the amount you actually borrow.

Why hard money lenders require larger down payments than banks

Hard money lenders operate on a different risk model than traditional banks. A bank spreads risk across thousands of mortgages backed by federal insurance. A hard money lender puts their own capital into each deal, so they need more skin in the game from you to protect themselves. The larger down payment means you have more to lose if the property doesn't perform as expected, which aligns your interests with theirs.

The down payment also serves as proof that you're serious and that you've done basic due diligence on the property. If you're only putting 10 percent down on a property you haven't inspected thoroughly, the lender knows you're taking a casual approach. A 25 percent down payment signals you've vetted the deal and believe in it enough to risk significant capital.

How down payment requirements change based on property type and condition

A hard money lender will ask for more down payment on a property that needs heavy renovation than on one that's move-in ready. A distressed property—one that's been foreclosed, abandoned, or requires structural work—might require 30 to 40 percent down because the lender's exit options are limited if you default. A property in good condition in a strong market might only require 15 to 20 percent.

Commercial properties and multi-unit residential buildings often have different requirements than single-family homes. A lender familiar with your market and your track record may also reduce the down payment requirement. If you've successfully completed three hard money loans with the same lender, they may offer 15 percent down on your fourth deal instead of 25 percent.

Where down payment money comes from and what's not allowed

Your down payment must come from your own funds—savings, investment accounts, or money from a partner or family member who is also on the loan. Hard money lenders do not allow you to borrow the down payment from another lender, use a credit card cash advance, or take out a personal loan to cover it. This is a firm rule because the lender needs to know you have genuine capital at risk.

Some lenders will accept a gift of down payment funds from a family member, but they'll require a signed gift letter stating the money is a gift, not a loan you'll repay. They may also ask for bank statements showing the funds have been in the account for at least 30 to 60 days to prove the money isn't borrowed.

How the down payment affects your loan amount and closing costs

Your down payment reduces the amount you need to borrow. If a property costs $200,000 and you put 25 percent down ($50,000), you borrow $150,000. Hard money lenders charge origination fees (typically 2 to 5 percent of the loan amount), so a smaller loan means lower fees in dollar terms. However, the interest rate on the remaining balance is still high—usually 8 to 15 percent annually.

The down payment is held in escrow by a title company or attorney until closing. At closing, it's applied to the purchase price. You don't get it back; it becomes part of your ownership stake in the property. If the deal falls through before closing due to your actions, you may lose the down payment.

Negotiating down payment amounts with hard money lenders

Down payment percentages are not always fixed. If you have a strong exit strategy—a clear plan to refinance, sell, or lease the property—some lenders will negotiate. If you're an experienced investor with a track record of successful deals, you may be able to put down 15 percent instead of 25 percent. If the property is in a hot market and the lender is confident it will appreciate, they may also be flexible.

The best time to negotiate is before you formally explore. Talk to multiple lenders about their requirements for your specific property and situation. Some lenders specialize in certain property types or markets and may have more flexible terms. However, don't expect a lender to drop their down payment requirement below 15 percent unless you have significant experience or an exceptionally strong deal.

What happens if you can't come up with the full down payment

If you don't have the full down payment amount, you have a few options. You can find a partner or co-investor to contribute part of the down payment in exchange for a share of the profits. You can look for a lender who specializes in lower down payment loans, though these typically charge higher interest rates and fees. You can also wait and save more capital before pursuing the deal.

Some investors use a technique called "wholesaling," where they get a property under contract at a low price and then sell the contract to another investor for a fee, without ever needing to close on the property themselves. This avoids the down payment requirement entirely, but it requires different skills and market knowledge than traditional hard money borrowing.

Frequently Asked Questions

Can I use a home equity line of credit or retirement account for the down payment?

A home equity line of credit may work, though the lender will want to verify it's available and not already committed elsewhere. Retirement accounts like 401(k)s and IRAs are generally not allowed because hard money lenders want to see funds that are truly liquid and under your control. Some lenders will accept a loan from a family member if it's documented separately from the hard money loan itself.

What if the property appraises for less than the purchase price?

If the property appraises lower than the purchase price, the lender may reduce the loan amount, which means you'll need to bring more cash to closing to make up the difference. Some lenders will walk away from the deal entirely if the appraisal is significantly lower. This is why getting a pre-purchase inspection is critical—it helps you avoid overpaying in the first place.

Do I get the down payment back if I refinance with a traditional bank later?

No. The down payment becomes your equity in the property. When you refinance with a bank, you're borrowing against the property's value, but the down payment you put in stays as your ownership stake. If the property is worth more than you paid, you may be able to cash out some equity, but that's different from recovering your original down payment.

Are there hard money lenders who require less than 15 percent down?

Rarely, and usually only for experienced investors with a strong track record or for properties in very hot markets. Some lenders advertise "no money down" deals, but these typically come with much higher interest rates, larger fees, or require you to cover the down payment through a separate arrangement. Read the fine print carefully—what looks like no money down often means you're paying it in fees instead.

Can I use the down payment to cover closing costs?

No. The down payment and closing costs are separate. Your down payment is applied to the purchase price. Closing costs (title insurance, appraisal, attorney fees, lender fees) are paid separately, usually out of pocket or sometimes rolled into the loan amount. Plan to have both the down payment and closing costs available before you make an offer.