Do Hard Money Lenders Require a Down Payment, Answered

Do hard money lenders require a down payment? This article will detail the answer to that question, as well as expert advice on how to get a hard money loan with no money down. Read below to learn more.

Main Takeaways

• Lenders usually ask for a hard money loan down payment of 10% to 30% of your loan amount.
• You can boost your chances of getting a hard money loan with no money down by having great credit, great collateral property, prior experience in real estate investments, a low DTI and LTV ratio, and being able to negotiate with your lender.

Table of Contents

• Do Hard Money Lenders Require a Down Payment?
• How to Get a Hard Money Loan with No Money Down
• What are the Pros and Cons of Hard Money Lending?

Do Hard Money Lenders Require a Down Payment?

Yes, hard money lenders typically require a down payment of 10% to 30% of your loan amount. The more of a down payment you get over with now, the better your interest rates could be for the loan term.

However, some lenders, like certain Baltimore hard money lenders, might differ. They may offer up to 100% financing if your qualifications are right. So, be sure to look out for those lenders.

How to Get a Hard Money Loan with No Money Down

To boost your chances of getting a hard money loan with no money down, you should check the following boxes:

Have a Great Credit Score

Hard money lenders prize borrowers who have a high credit score. It shows that you have a history of following up on your financial responsibilities. In turn, this means you are more likely to repay a loan if you get one. Because of that, good credit scores may lighten your hard money loan down payment.

Have a Top-Notch Collateral Property

Another way to get a lower down payment for a hard money loan is to have a top-notch collateral property. After all, hard money lenders want to know that the project they’re investing in is viable. They want to see that you are positioned for a ROI. That said, a property’s current or after-repair value is one of the best ways to gauge that.

Be Experienced in Real Estate Investing

Having tried-and-true experience in real estate investing shows you know what you’re doing. It shows that you’re prepared for the path forward in completing your project. All in all, it boosts your credibility and reliability.

Keep a Good Debt-to-Income Ratio

A debt-to-income ratio compares how much larger your income is than your monthly loan payment. It shows that your income can pull sufficient weight to cover loan payments. As such, it plays a big role in your hard money loan down payment amount.

Retain a Low Loan-to-Value Ratio

Loan-to-value ratios are also crucial when it comes to a down payment for a hard money loan. They evaluate how your property value measures against your desired loan amount. Lower LTV ratios show lenders that their loans would be less risky to provide. With them, the lender can be sure that it’s financially safe to move forward.

Negotiate with Your Lender

One of the best features of hard money loans is that you can sit down directly with your lender, comb through the details together, and reach a loan agreement that works for everyone. So, if you need to make your hard money loan down payment more manageable, they may hear you out.

What are the Pros and Cons of Hard Money Lending?

Down payment aside, hard money loans come with unique benefits to consider:

Pros of Hard Money Loans

• Versatile Uses: As long as you spend your loan on real estate purposes, you can use it for virtually any use under the sun. This contrasts with traditional loans, which limit you to specific uses.
• Flexible Terms: Lenders can customize hard money loan terms based on the needs of each investor.
• Bigger Loan Amounts: Since hard money lenders size up loans on a case-by-case basis, they can step in if they see you need, and qualify for bigger, loan amounts. They may be able to give you a larger portion than other types of lenders would.
• Short Terms: Generally, hard money loan terms are fairly short, from a few months to a few years. This is perfect for people who want to put their loan repayment behind them ASAP.
• Fast Approval: Hard money approval and loan delivery are among the fastest in the lending industry. Borrowers usually get these within just a few days or weeks. For example, we try to give applicants responses within 48 hours.

Cons of Hard Money Loans

Like all loans, hard money loans have their drawbacks, too. These can include:

• Collateral-Based: Hard money loans are high risk for lenders, so they must use the properties people borrow for as collateral. Having this safeguard in place lets them rest assured that they can recoup their losses, should the borrower fail to repay their loan. As a result, non-payers will have to forfeit their property.
• Higher Interest Rates: Given that it’s cost-prohibitive to offer hyper-expedited loan delivery, hard money lenders must offset that cost by asking for higher interest rates.
• Not for Long-Term Funding: Hard money loans are meant to be used for short-term projects or as bridge funding for longer ones. So, if you want funding for decades, it might not be the right fit.
• Short Terms: We’re putting this here as well as the pros section because it can be a good or bad quality, depending on the borrower. If you struggle to stay organized and on top of your finances, you may not be ready for the accelerated repayment schedule.

Get a Low (Or No) Hard Money Loan Down Payment with MHML Baltimore

In summary, a down payment for a hard money loan is typically 10%-30% of the overall loan amount. You can help lower this number, or eliminate it altogether, by being the ideal borrower lenders want. For example, having a good credit score, being experienced in real estate, and using sufficient collateral can all boost your chances.

If you meet those criteria, we at Maryland Hard Money Lenders may be able to offer you up to 100% funding. No down payment required. Call us today to maximize savings on upfront loan costs.