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How much money down is required for a Hard Money Loan?


Here at Axe Lending Group we often hear, “How much down payment is required to flip a house with hard money?” Here, we hope to answer that question as well as provide info that may be valuable to both the first timer as well as the experienced house flipper who has done 8+ projects.

If you’re considering fixing and flipping a house for the very first time using a hard money loan, the general rule of thumb for is a down payment of 20-25% of purchase price is needed. On top of the down payment, a first-time investor will need to cover loan origination fees of approximately 3-4% of the loan amount plus standard closing costs of another 1.5% of purchase price  (Title, Escrow, Taxes, Recording, Etc.)

Example of a Fix & Flip Scenario for the First-Timer

A first-time investor is buying a house for $200,000 using  hard money financing. The new loan amount will be $168,000 (75% Loan-To-Value (LTC)) with loan origination fees of 3% and fixed closing costs of approximately $2,520.

$200,000 Purchase Price
-$168,000 Loan Amount (75% LTC)
-$5,040 Loan Origination Fees (3 Points)
-$2,520 Closing Costs on Purchase (1.5% of Purchase Price)
=$24,440 Total Cash-to-Close

In addition to the $24,440 cash to close, some hard money lenders will require first-time house flippers to show liquid assets to cover the first six months of payments. including taxes and insurance along with enough cash on hand to cover the entire renovation budget, as provided prior to loan approval.

In the $200,000 purchase example above, the amount of additional liquidity required by the lender would look like this:

$6,000 6 Payments (Mortgage, Taxes, & Insurance)
+$20,000 Renovation Budget
=$26,000 Additional Liquidity Required

$50,440 Total Liquidity required ($24,440 + $26,000)

For a first-time house flipper, paying $200,000 to acquire and $20,000 to renovate the home, it will require nearly $100,000 in the bank to make it happen.

Example of a Fix & Flip Scenario for an Experienced Investor

Each month, Axe Lending Group originates a dozen or more hard money loans for experienced house flippers. Hard money financing for experienced investors looks a little different than for the first-timer.

Using that same $200,000 purchase price, an experienced investor is looking at an LTC of 85-90%:

$200,000 Purchase Price
$180,000 Loan Amount (90% LTV)
-$5,040 Loan Origination Fee (3 Points)
-$2,520 Closing Costs
=$12,440 Total Cash-To-Close

Hard money lenders usually want to see up-to-date liquidity to make sure the investor has cash on-hand. But, at this point in a successful lender-borrower relationship of many years, asset verification is mostly a formality to have in the loan file. Experienced real estate investors can expect to receive higher leverage financing at better pricing than first-time house flippers.

Alex Boeger is an Account and Marketing Executive at Axe Lending Group. We have in house private lenders for fix and flip deals up to $500k within 17 states. We also broker loans for buy and hold, commercial cash out refi and construction loans for residential and commercial projects nationwide up to $100 million. For more information about Axe Lending Group, visit our website at  832-940-9480