Hard money lenders will fund a down payment, but the cost and risk are steep
Yes, you can borrow a hard money loan to pay your down payment on a home purchase. Hard money lenders do not follow the same rules as banks—they care about the property value, not your credit score or income verification. If the property itself is worth enough, they will lend against it, and you can use that money for your down payment.
The catch is that hard money loans are expensive and short-term. Interest rates typically run 8 to 15 percent, sometimes higher. You pay origination fees, appraisal fees, and often a points fee upfront—sometimes 2 to 5 points of the loan amount. You also have to repay the entire loan within 6 to 12 months, which means you need a plan to refinance into a traditional mortgage or sell the property before the hard money loan comes due.
Most people use hard money for down payments only when they cannot get a conventional loan fast enough or when they are buying a property that needs repair and no bank will touch it. If you have other options, they will almost certainly cost you less.
Key Takeaways
- Hard money lenders base lending decisions on property value, not your credit or income, so you can borrow a down payment even if traditional lenders would reject you.
- Interest rates on hard money loans range from 8 to 15 percent or higher, plus upfront fees of 2 to 5 points, making this an expensive short-term borrowing option.
- Hard money loans come due in 6 to 12 months, so you must have a plan to refinance into a mortgage or sell before the loan matures.
- Using hard money for a down payment makes sense only if you cannot may have access to for a conventional loan or need to close faster than a bank can process.
How hard money lenders evaluate a down payment loan
A hard money lender looks at the after-repair value (ARV) of the property, not your personal finances. They will send an appraiser to the house, estimate what it will be worth once repairs are done, and lend a percentage of that value—usually 60 to 75 percent of the ARV. If the house will be worth $300,000 after repairs and they lend 70 percent, you get $210,000. You can use part of that for your down payment and the rest for renovation costs.
Because the lender is betting on the property, not on you, they do not require a W-2, tax returns, or a credit check. You will need to show proof of funds for any money you are putting in beyond the hard money loan, and you will need a signed purchase contract showing the property address and sale price. Some lenders also want to see that you have experience managing construction or a contractor lined up.
The lender will place a first or second mortgage on the property as collateral. If you cannot repay when the loan matures, they can foreclose and sell the house to recover their money. That is why they care so much about the property value and so little about your credit score.
The real cost of borrowing for a down payment this way
A hard money loan for a $50,000 down payment at 10 percent interest with 3 points will cost you roughly $1,500 in points upfront, plus $5,000 in interest over a 12-month term. Add appraisal, underwriting, and title fees—typically $1,000 to $2,000 combined—and your total cost is $7,500 to $8,500 just to borrow $50,000 for one year. That is an effective annual cost of 15 to 17 percent, not the 10 percent rate alone.
If you refinance into a conventional mortgage before the 12 months are up, you will pay interest only for the time you held the hard money loan. If you hold it the full year, you pay the full interest. Either way, you are paying a premium for speed and flexibility.
Compare this to a personal loan from a bank or credit union, which might charge 6 to 12 percent interest with no points, or a home equity line of credit if you own another property, which might be 7 to 10 percent. Hard money is the most expensive option, so use it only if the cheaper options are not available to you.
When hard money for a down payment makes sense
Hard money works when you are buying an investment property or a fixer-upper that a bank will not finance because of its condition. Banks will not lend on a house that needs $100,000 in repairs, but a hard money lender will, because they are lending on what the house will be worth, not what it is worth today. You borrow the down payment and the renovation budget in one loan, close fast, and start work.
It also makes sense if you are in a competitive market and need to close in 7 to 10 days. A conventional mortgage takes 30 to 45 days. A hard money lender can fund in a week. If the seller will not wait and you have the property value to back the loan, hard money gets you to closing.
Hard money does not make sense if you are buying a standard residential home in good condition and you have a job and decent credit. A conventional loan will be cheaper and you will have a 30-year payoff instead of a 12-month balloon. Use hard money only when conventional lending is not an option or when the speed is worth the cost.
How to structure a hard money down payment loan
Most hard money lenders will lend up to 75 percent of the after-repair value. If you are buying a $200,000 house that will be worth $250,000 after $30,000 in repairs, the lender might offer you $187,500 (75 percent of $250,000). You use part of that for your down payment and the rest for construction. You cover any gap with your own cash.
The loan documents will specify the interest rate, the term (usually 6 to 12 months), the points fee, and the conditions for extension or refinance. Some lenders allow you to extend for another 6 months if you are still renovating, but they charge an extension fee. Read the prepayment clause carefully—some lenders penalize you for paying off early, while others do not.
You will also need a construction draw schedule if you are borrowing for repairs. The lender will release funds in stages as work is completed and inspected, not all at once. This protects the lender and keeps you from spending the money on something other than the property.
Your exit strategy before the loan comes due
Hard money loans are not meant to be permanent. You have 6 to 12 months to pay them back. Your exit strategy is usually one of three: refinance into a conventional mortgage, sell the property, or extend the loan (if the lender allows it and you pay the extension fee).
Refinancing is the most common path. Once you have owned the property for a few months and completed repairs, you can apply for a conventional mortgage. The lender will appraise the property at its new value, and if it has gone up, you may have enough equity to refinance out of the hard money loan and into a 30-year mortgage at a lower rate. This works best if the property is in good condition and you have improved your credit or income since you first borrowed.
Selling is the backup plan. If the market is strong and the property has appreciated, you can sell, pay off the hard money loan from the proceeds, and walk away with your profit. If the market is weak or repairs took longer than expected, you may not have enough equity to cover the loan payoff, which is why hard money lenders care so much about the property value upfront.
Risks of using hard money for a down payment
The biggest risk is that you cannot refinance or sell before the loan matures. If interest rates have risen, your credit has not improved, or the property has not appreciated as expected, you may not may have access to for a conventional mortgage. You will have to extend the hard money loan and pay another round of fees and interest, or sell at a loss.
A second risk is that renovation costs exceed your budget. Hard money lenders fund based on the after-repair value, but if repairs cost more than expected, you run out of money before the work is done. The property does not reach its projected value, and you cannot refinance. You are stuck holding a depreciating asset with a balloon payment due.
A third risk is that the lender forecloses if you miss a payment. Hard money lenders are not banks—they do not work with you on missed payments the way a mortgage servicer might. If you cannot pay when the loan comes due and you cannot refinance, the lender will foreclose, take the property, and sell it to recover their money. You lose your down payment and any equity you have built.
Frequently Asked Questions
Can I use a hard money loan for a down payment on a primary residence?
Technically yes, but most hard money lenders focus on investment properties and fixer-uppers, not owner-occupied homes. If you find a lender willing to do it, the terms will be the same—high interest, short term, and a requirement to refinance or sell within 12 months. For a primary residence, a personal loan or home equity line of credit will almost always be cheaper.
What happens if I cannot refinance before the hard money loan comes due?
You have a few options: extend the loan and pay another round of fees and interest, sell the property and use the proceeds to pay off the lender, or negotiate with the lender to convert the loan into a longer-term product. If none of those work, the lender will foreclose and take the property to recover their money.
Do hard money lenders check credit or income?
Most hard money lenders do not pull your credit or require income verification. They focus on the property value and your ability to repay based on the sale or refinance. Some lenders may ask about your experience with real estate or construction to assess whether you can execute your exit strategy.
How much of my down payment can a hard money loan cover?
Hard money lenders typically lend 60 to 75 percent of the after-repair value of the property. The exact amount depends on the property condition, location, and the lender's risk tolerance. You will need to cover any gap between the hard money loan and your down payment with your own cash.
Is hard money faster than a conventional mortgage?
Yes. Hard money lenders can fund in 7 to 10 days, while conventional mortgages take 30 to 45 days. If you need to close quickly in a competitive market, hard money is faster. The trade-off is much higher interest and fees.