Experts Explain—Can You Use a Hard Money Loan for a Down Payment?


You have your eyes set on a property and need to secure a loan to make the purchase. While several banking products help you finance real estate or other assets, almost every lending institution asks you to put some money down. If you don’t have funds saved up, you may consider getting a hard money loan for the down payment—but is that a viable solution?

Hard money lenders provide instant loans for personal and commercial real estate purchases, business capital, and any other investment requiring significant funding. Since hard money lenders operate by their own rules, borrowers are unsure of the criteria for securing the loan. Another aspect that puzzles borrowers is whether hard money lenders ask for a down payment like traditional lenders do.

We have laid out the essential info to help you work out a suitable borrowing option.

Funding With Traditional Banks vs. Hard Money Lenders

When you apply for a loan from a traditional lender like a bank or a credit union, your application goes through strict scrutiny. The lender checks your credit history, tax returns, outstanding debt, employment status, and other credentials to determine your financial stability. If everything meets the standards set by credit bureaus, your application is approved, and the asset you wish to purchase serves as the collateral. The whole process can take up to 90 days.

In most cases, you need to put in a down payment because banks don’t provide 100% financing. They determine a loan-to-value or LTV ratio (the measure comparing the loan to the appraised value of the purchased asset) according to the credit risk (a score suggesting the borrower’s ability to repay) involved. The lender will fund you with the LTV amount and ask you to put in the rest as a down payment.

Source: Andrea Piacquadio

Hard money lenders don’t stick to traditional lending standards or determine whether to extend a loan based on credit risk scores. Unlike banks, hard money lenders focus solely on the collateral. They appraise your collateral and, if it has enough value, fund you within one or two weeks. 

Because of the convenience and speed, hard money lenders charge slightly higher (about 1.15 to 1.8 times more) interest rates than traditional lenders.

Most hard money lenders offer up to 75% LTV. Check out the summary of asset funding with traditional banks vs. hard money lenders:

AspectTraditional LendersHard Money Lenders
Average LTV ratio50%–70%60%–75%
Interest rates6%–7%8%–22%

Can You Use a Hard Money Loan as a Down Payment for Another Loan?

If you don’t have the cash for a traditional bank loan down payment, a hard money loan is a viable supplemental funding option. The logistics of the deal would be the same as with any other hard money loan—you offer a hard asset (like real estate, jewels, and similar) as collateral and get an LTV based on the market value of the asset.

As a borrower, you have to review three aspects of the situation:

  1. What asset are you going to offer as collateral?
  2. Where can you find hard money lenders for your situation?
  3. Do you have to put in another down payment specifically for the hard money loan?

Hard Money Loan for a Down Payment—What Makes for Qualifying Collateral?

Collateral is the essence of a hard money loan. If you’re already in talks for a bank loan, the asset you’re going to purchase has likely already been collateralized with the lender. So, what are you going to offer the hard money lender? You have two options:

  1. Cross-collateralize—Cross-collateralization is a lending concept where a borrower uses the same asset to guarantee two or more loans. This type of collateralizing is more common when different loans originate from the same lender as multiple lenders won’t be okay with sharing collateral. Many hard money lenders refuse to work with collateral that’s also held by the bank because, in the event of default, recovering the investment is a pain in the neck
  2. Bring another collateral—If cross-collateralization doesn’t work, you have no option but to offer another asset as collateral. You can use precious jewels, vehicles, rental properties, valuable collectibles, or similar as collateral. If accepted, the hard money lender will finance the LTV amount according to the current value of the asset

Keep in mind that the interest rates for hard money loans are generally influenced by the LTV ratio. If you bring in high-value collateral and require a low LTV ratio (10%–30%), there’s a high chance you’ll be offered a low-interest rate.

Source: Mikhail Nilov

How To Find Hard Money Lenders for Supplemental Funding

Hard money lending is a thriving industry, and not every lender wants to provide supplemental loans when they can fund meaty projects like home purchases and construction. Here’s how to find the right lender for your situation:

  • Look for lenders with good ratings online—Most hard money lenders have websites detailing their services. If a lender deals in particular types of financing (such as “only commercial lending” or “only real estate lending”), it’s usually mentioned on the site
  • Tap into your real estate network—Property investors can often tell you which lenders are open to funding projects like yours

Apply to more than one lender so that you can compare features like interest rates, repayment terms, and initial fees. In case no lender agrees to offer a loan for your down payment, you can consider taking a hard money bridge loan—the hard money lender would finance your property purchase with a high LTV ratio, and you can refinance with a bank loan after a couple of months.

Do You Have To Put in a Down Payment on a Hard Money Loan?

Hard money lenders don’t have fixed rules in terms of down payment. It is typically needed when the lender is the one who completes the purchase on the borrower’s behalf. In cases where the borrower only wants funds in their account, the down payment won’t even be a part of the discussion.

Besides down payment requirements, you may also want to look for interest-only hard money loans (no amortized payments) that allow you to repay the principal only when the term expires—not as a component of interest payments. This keeps your monthly/quarterly financial commitment low.

Source: Tima Miroshnichenko

Need Quick Hard Money Loans With No Money Down? Opt for Hard Money Loan (HML) Solutions

If you’re tired of logistical hiccups stopping your borrowing plans, turn to Hard Money Loan (HML) Solutions

The Florida-based lending group has a pool of experienced investors and entrepreneurs who:

  • Offer multipurpose hard money loans with no down payment
  • Have minimal paperwork requirements
  • Provide speedy fund allotment

HML Solutions is all about the spirit of collaboration for mutual financial growth. The lenders never exploit anyone with exorbitant interest rates or predatory policies. Everything is transparent and favors the borrower. Here’s what a typical HML loan package looks like:

AspectHML Solutions
Loan amount$100,000–$50,000,000
Term1–3 years
Interest rate typeFixed
Interest rates9.99%–12% (depends on LTV)
LTVUp to 70% of the current purchase price or appraised asset value (whichever is lower)
Origination fee2 points or 2%
Closing time3 days to 2 weeks
AmortizationNo amortization—Interest-only payments
Prepayment penaltyNo penalty after 6 months

HML Solutions commands a 5-star service rating on Google and has multiple reviews commending the group’s:

  • Reasonable terms
  • No-nonsense approach
  • Time-sensitive delivery
  • Proactive solutions (for near-impossible lending scenarios)

Apply for an HML Solutions loan online to discuss your situation with a veteran lender.

Source: Mikhail Nilov

Borrower Experience at HML Solutions

Unlike basic hard money lending institutions, HML lenders adopt a flexible, case-by-case approach with every borrower. Once you reach out to HML Solutions, you can expect:

  1. Direct discussions—HML lenders believe in providing a direct service tailored to the needs of each borrower. All you have to do is state your requirements to the lender, and they will customize your loan package according to top industry standards
  2. Transparent communication—The terms and conditions are crystal clear from the get-go, so you don’t have to worry about surprise charges down the line. If HML lenders cannot accept your loan application, you will be informed immediately
  3. Fast and hassle-free approval—HML lenders can fund a deal in as few as 3 days, provided the title work is minimal. The group generally approves a loan application of every candidate who:
    1. Offers legitimate collateral with enough equity
    2. Agrees to the LTV ratio
  4. Guaranteed funding upon approval—HML lenders enjoy a great reputation among borrowers because they never back out of approved deals 
  5. Professional yet friendly treatment—HML Solutions is a safe and judgment-free space for people to discuss their funding needs. The lenders look forward to building long-term practical relationships with every applicant. Even rejected applicants can ask the HML team for advice regarding alternative funding options

How To Apply for a No-Down-Payment Hard Money Loan at HML Solutions

Get your deal moving by requesting a phone call with HML lenders. Here’s how to proceed:

  1. Fill out an online application form—your info is strictly confidential and only used for screening
  2. Talk to the lender when they call and be transparent about your situation to expedite the screening process
  3. Wait for the lender to appraise the value of your collateral (if necessary)
  4. Review the loan package offered
  5. Accept or reject

HML lenders are open to both real estate and non-real estate collateral. Apply today for various types of funding, including:

  • Bridge financing
  • Short sales
  • Real estate purchase (personal or commercial)
  • Fix and flip deals
  • Construction and reconstruction
  • Business acquisition
  • REOs (real estate-owned purchases)
  • Investment in startups and businesses
  • Refinancing or cash-out financing

Source: Dany Kurniawan

Still Short on Down Payment? Funding Options Besides Hard Money Loans

Your options for funding a down payment besides hard money and bank loans are, unfortunately, limited. You may consider:

  • Taking personal loans—You can ask friends and relatives for a loan or approach professional personal lenders (avoid loan sharks who charge exorbitant rates and can be unforgiving in case of defaults)
  • Crowdfunding—Crowdfunding is a popular way to raise capital for businesses, but they generally work for causes with a mass appeal
  • Borrow against insurance policy—Borrowing against an insurance policy is another last-resort solution during a liquidity crisis. Depending on your insurance provider, you can borrow up to 90% of the maturity or a similar value

If you’re taking multiple loans, it’s prudent to know what you’re getting into. Start with a plan—chalk up a tight budget to ensure you meet your monthly/quarterly interest obligations on time. You should also maintain a schedule of interest and principal payments to keep everything organized.

Featured image source: Karolina Grabowska

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