Hard Money Lenders and Down Payments

When you’re just starting out in Real Estate Investing using Hard Money Loans, you might be wondering…

“Is a down payment always required by hard money lenders?”

Unlike most hard money lenders, DoHardMoney does NOT.  But let’s dive a little deeper so you can begin to understand if you’ll need a down payment when working with a hard money lender.

Most Hard Money Lenders Require Money Down

The majority of hard money lenders out there DO require a down payment.

They’ll take a look at your credit score, experience, and maybe a few other factors, and then calculate your down payment from there. Most often, you’ll be required to front 20% to 30% of the deal.

And it makes sense why they do this:

They’re taking a risk on you. They’re assuming that you’ll be able to pull off the flip and pay back the loan with interest within the timeframe they’ve established. When you pay 20% – 30% up front, it lowers their risk.

Each company has their own underwriting criteria to determine risk on a deal. If they see that you have experience and a good credit score, you’ll be able to pay less money up front.

However, if you want a true no-money down hard money lender, Do Hard Money is your best option.

One of my students, Hunter, said it best:

He pocketed $70k with us on his very first flip!

Other hard money lenders wouldn’t have given Hunter the time of day. But that’s our philosophy – to help new fix & flippers break into the industry without already being rich.

“There’s a lot of people that have the ability to do this, and the desire to do this, and the time and the passion to do this that can’t write a $30,000 check.”

Hunter W., Virginia Real Estate Investor and DHM Borrower

Are There Really Any No Money Down Hard Money Lenders?

Yes, we are a no money down hard money lender when a deal meets our criteria for that type of loan. In our direct lending model, we don’t ask for down payments. We are able to fund up to 70% of the After Repair Value (ARV) of a property. That 70% can cover the property purchase, rehab, and loan costs – where most hard money lenders won’t even consider financing anything except the property costs.

Let’s look at an example:

Let’s say you find a deal with an ARV of $200,00, meaning we can fund up to $140,000 (.70 x 200,000).

You put the property under contract for $110,000, you rehab it for $20,000, and there are $10,000 in other costs – totaling $140,000.

In that scenario, you would literally be required to bring $0 to the table, and you could complete a deal with massive profit potential.

Yes, fitting everything under 70% of the ARV can be difficult. It’s hard to find deals that fit that criteria – but our members do this all the time because they follow our system.

In fact, our entire program is designed to teach our members how to find deals that require no money down.

What If The Deal Doesn’t Quite Qualify for 100% Financing?

Let’s say that after you crunch all the numbers on your deal, you’re still $10,000 short – money you need to bring to the table. However, you know that there is still massive potential on the deal.

Most people I work with usually will misinterpret this gap as us asking for a down payment, but that’s not really the case. It’s my goal that no investor gets turned away because they’re $10,000 short of a big payday.

With us at DHM, you’d submit a loan application and we’d order evaluations of this property.  We would have 2 independent evaluators go out to the property and submit reports back to our underwriter with 18 comparables and their opinion of the market. It is very common for investors, particularly new investors, to not have tight numbers on an application for the rehab costs. You’ll get better at estimating this as you gain more experience.

It is also extremely common for new investors to not understand how to determine appropriate comps. You’ll need to remember that we’ll always use the lowest comps – not the highest or the average.

You should also remember that a comp is not just a similar house nearby. A true comp is a recently sold or on-the-market nearby property with similar specs.

The rehab costs are based on what it will take to get your potential flip to compete with those properties. This is why our property evaluators are always real estate professionals who live and work in that area. They know that there may be houses that technically are within a mile of the property, but not actually a comp, because sometimes neighborhoods that are in the same area can vary vastly in values.

Our underwriter talks to these evaluators and determines what we feel is the correct ARV of a property like this in that neighborhood.

Getting a real clear picture of what the rehab will cost, walking the house with your contractor, and really looking at the comps will help you get nearer the numbers that our evaluators and compliance team will return.

We also understand that this situation arises and have created avenues for our borrowers to be able to cover this gap without having to use their own money.

Are There Really Any No Money Down Hard Money Lenders?

Yes, we are a no money down hard money lender when a deal meets our criteria for that type of loan. In our direct lending model, we don’t ask for down payments. We are able to fund up to 70% of the After Repair Value (ARV) of a property. That 70% can cover the property purchase, rehab, and loan costs – where most hard money lenders won’t even consider financing anything except the property costs.

Let’s look at an example:

Let’s say you find a deal with an ARV of $200,00, meaning we can fund up to $140,000 (.70 x 200,000).

You put the property under contract for $110,000, you rehab it for $20,000, and there are $10,000 in other costs – totaling $140,000.

In that scenario, you would literally be required to bring $0 to the table, and you could complete a deal with massive profit potential.

Yes, fitting everything under 70% of the ARV can be difficult. It’s hard to find deals that fit that criteria – but our members do this all the time because they follow our system.

In fact, our entire program is designed to teach our members how to find deals that require no money down.

What If The Deal Doesn’t Quite Qualify for 100% Financing?

Let’s say that after you crunch all the numbers on your deal, you’re still $10,000 short – money you need to bring to the table. However, you know that there is still massive potential on the deal.

Most people I work with usually will misinterpret this gap as us asking for a down payment, but that’s not really the case. It’s my goal that no investor gets turned away because they’re $10,000 short of a big payday.

With us at DHM, you’d submit a loan application and we’d order evaluations of this property.  We would have 2 independent evaluators go out to the property and submit reports back to our underwriter with 18 comparables and their opinion of the market. It is very common for investors, particularly new investors, to not have tight numbers on an application for the rehab costs. You’ll get better at estimating this as you gain more experience.

It is also extremely common for new investors to not understand how to determine appropriate comps. You’ll need to remember that we’ll always use the lowest comps – not the highest or the average.

You should also remember that a comp is not just a similar house nearby. A true comp is a recently sold or on-the-market nearby property with similar specs.

The rehab costs are based on what it will take to get your potential flip to compete with those properties. This is why our property evaluators are always real estate professionals who live and work in that area. They know that there may be houses that technically are within a mile of the property, but not actually a comp, because sometimes neighborhoods that are in the same area can vary vastly in values.

Our underwriter talks to these evaluators and determines what we feel is the correct ARV of a property like this in that neighborhood.

Getting a real clear picture of what the rehab will cost, walking the house with your contractor, and really looking at the comps will help you get nearer the numbers that our evaluators and compliance team will return.

We also understand that this situation arises and have created avenues for our borrowers to be able to cover this gap without having to use their own money.

no money down hard money lenders

At DHM, you’d submit to us a loan application and we’d order evaluations of this property.  We would have 2 independent evaluators go out to the property and submit reports back to our underwriter with 18 comps and their opinion of the market. It is very common for investors, particularly new investors, to not have really tight numbers on a oan application for the rehab costs. You’ll get better at estimating this as you gain more experience. It is also extremely common for new investors to not understand how to determine appropriate comps. You’ll need to remember that as a hard money lender, DHM is going to go off of the lowest comps. You should also remember that a comp is not just a similar house nearby, a comp is a recently sold or on the market similar house nearby. And the rehab needs to be based on what it will take to get your potential flip to compete with those properties.  This is why our property evaluators are always real estate professionals who live and work in that area. They know that there may be houses that technically are within a mile of the property, but not actually a comp, because sometimes neighborhoods that are in the same area can vary vastly in values.

Our underwriter talks to these evaluators and determines what we feel is the correct ARV of a property like this in that neighborhood.  The after repair value we determined for this property came back at $190,000 – only 10% off what you calculated.

We lend 70% of the ARV we calculate for both purchase and repair.  $190,000 X 70% = $133,000 that we can lend you.  $25,000 of that would be set aside for repairs, leaving you $133,000 – $25,000 = $108,000 for purchasing the property.

If you wanted to close this deal with us, you’d have to figure out a way to bridge that gap between the $130,000 you offered on your purchase contract and the $108,000 we can lend to you. Or perhaps once the comps have come back lower you could renegotiate with the seller to get them to lower the sale price on the property.

Getting a real clear picture of what the rehab will cost, walking the house with your contractor and really looking at the comps will help you get nearer the numbers that our evaluators and compliance team will return.

We also understand that this situation arises and have created avenues for our borrowers to be able to cover this gap without having to use their own money.  It’s through getting a 2nd position lien on the property with one of our gap financing partners who fund these scenarios. You can talk to our account advisers to help obtain this funding.

Adding another layer to this conversation, we can touch on how some hard money lenders lend based on the after repair value like we do and others will lend on the purchase price. Make sure you know on what number a potential lender is basing their loan. Again, look at the total loan offer, what is covered and how much you’ll need to bring to the table.

Those that lend on purchase price will only give a percentage of what you plan on buying the property for – usually a max of 80%, which means that with any of these kinds of HML’s you will be making a down payment.

I think the core reason behind your question is that you are trying to get into real estate investing with little or no money of your own.

It certainly can be done, however you need to understand all the circumstances that need to align in order to make that happen and what tools you will need at your disposal to make it work.

So What Are My Hard Money Down Payment Options?

Gap Financing – A No Money Down Option

This means you’d get a second position lien on the property with one of our gap financing partners who fund these scenarios. You can talk to our account advisers to help obtain this funding.

Adding another layer to this conversation, we can touch on how some hard money lenders lend based on the ARV like we do and others will lend on the purchase price. Make sure you know on what number a potential lender is basing their loan. Again, look at the total loan offer, what is covered, and how much you’ll need to bring to the table.

Those that lend on purchase price will only give a percentage of what you plan on buying the property for – usually a max of 80%, which means that with most hard money lenders you will be making a down payment.

No Money Down Deals Summarized

Gap Financing Deal

I mentioned this one above, but let me explain it again with some numbers. Suppose you find a property selling for $100,000, needing $30,000 in repairs. Your hard money lender evaluates the property and the area comps and determines the ARV to be $180,000. They lend you 70% of that amount, adding up to $126,000. As you can see, there’s a gap of $4,000, plus more to cover additional fees. Therefore, you will need to obtain gap financing through a business line of credit or a second loan to make the deal work.

We can work with you to find gap financing – don’t let that be the piece that holds you up.

100% Financing Deal

Now again, suppose you find a property selling for $100,000, needing $30,000 in repairs. Your hard money lender evaluates the property and area comps and determines the ARV is $220,000. Do Hard Money lends you 70%, adding up to $154,000. This covers the property purchase price, rehab costs and other potential fees. Therefore, $0 needs to be brought to the table to make the deal work. In this case, Do Hard Money covers 100% of your deal – hence the term, ‘100% financing.’

Now, just because a deal requires gap financing doesn’t mean it won’t generate a profit!

Here’s an excellent example. We had a borrower in Lisle, Illinois who found a property to fix and flip. We calculated a solid and conservative ARV on the property based on the evaluations and comps and determined that this deal required $17k cash-to-close.

Our borrower found a gap financing resource to cover the difference. The real estate market for the area improved and our borrower sold this property for a much higher price than originally anticipated. As a result, they pocketed an overall estimated profit of $62,682. They paid off the gap financing and kept a profit of over $50k! For more details and a closer look at this deal, click here.

Can We Help You Flip Your Next Deal?

We’d love to teach you how to flip your next deal with no money down – whether you’ve already got a property in mind or not.

If you’d like to flip a home in the next 90 days, then click the button below and answer a few questions about your situation and experience, and we’ll get you started!