If you’re a real estate investor in Texas, you may be wondering: Do hard money lenders require a down payment? The short answer is yes—most do. However, the structure is often different from a traditional bank loan.
Hard money loans are asset-based loans, which means the lender focuses more on the property’s value than your personal income or credit score. Even so, borrowers are usually required to bring some of their own funds to the deal.
Why Hard Money Lenders Require a Down Payment
Hard money lenders reduce their risk by lending a percentage of the property’s value—this is known as the Loan-to-Value (LTV) ratio. Instead of financing 100% of the purchase price, lenders typically cover a portion and expect the borrower to fund the rest.
For example:
- If a property costs $200,000
- And the lender offers 70% LTV
- The loan amount would be $140,000
- The borrower would need to bring $60,000 as a down payment
This structure ensures you have “skin in the game,” which lowers the lender’s risk and aligns both parties’ interests.
How Much Is the Typical Down Payment?
Most hard money lenders require 10% to 30% down, depending on:
- Your experience level
- The deal’s risk profile
- The property type
- The location and market conditions
In competitive markets like Houston or Dallas, lenders may be more flexible if the deal is strong. However, first-time investors should expect to bring a larger down payment compared to experienced fix-and-flip professionals.
Purchase Price vs. After-Repair Value (ARV)
One key difference with hard money loans is that lenders often base their loan on the property’s After-Repair Value (ARV) rather than just the purchase price.
For example:
- Purchase price: $150,000
- Estimated repairs: $50,000
- ARV: $250,000
- Lender offers 70% of ARV = $175,000
In this case, the loan may cover the entire purchase and even part of the renovation costs. However, the lender will usually not lend over a certain percentage of the purchase price in order to manage their risk at the beginning of the project. You may still need to bring funds for closing costs, interest reserves, or any gap between the contract price and the release of funds at closing.
So while the down payment may feel smaller compared to a conventional loan, it rarely disappears completely.
Can You Get 100% Financing?
True 100% financing is uncommon, but not impossible. Little City Investments may finance the full purchase price if:
- You are an experienced investor with a strong track record
- The property is significantly below market value
- You provide additional collateral
- You have substantial liquidity
In some cases, investors use cross-collateralization (using equity in another property) to reduce or eliminate the need for a large cash down payment.
However, most borrowers should plan to contribute capital to the deal. Loans without borrower “skin in the game” are very risky for lenders because the borrower may not be motived to complete the project.
What About Closing Costs and Fees?
In addition to the down payment, you should budget for:
- Origination fees (often 1–3 points)
- Appraisal or property evaluation fees
- Title and escrow costs
- Insurance
- The first interest payment
Even if a lender covers repairs and most of the purchase price, you’ll likely need cash available for these upfront expenses.
How to Prepare for a Hard Money Loan
If you’re planning to use hard money financing, here’s how to position yourself for approval:
- Have funds ready – Show proof of liquidity for your down payment and reserves.
- Know your numbers – Understand your purchase price, rehab budget, ARV, and exit strategy.
- Build a strong deal – Lenders care more about the property and projected profit than your credit score.
- Work with experienced lenders – Choose a lender who understands your local market and investment goals.
Considering a hard money loan for your next investment? Contact us today to discuss your financing options and move forward with clarity and confidence.