Commercial Real Estate Advisor

Myths vs. Facts: You Don’t Need a Down Payment with a Hard Money Loan

Those who are just starting out using hard money loans as a commercial real estate investor often wonder whether they actually need to have a down payment. Since hard money lenders are typically companies or private individuals, it’s a natural question to ask. However, there is a lot of misinformation surrounding loans from hard money lenders. Let’s take a closer look.

Hard money loans are asset-based, which means they utilize the property as collateral. Real estate investors often choose these types of loans because they are fast and relatively easy. So, will you need to have a down payment since they aren’t from a bank?

The Truth

You may have heard that you won’t need a down payment with these types of loans, but that’s very rarely the case. The answer, for the most part, is YES. A few hard money lenders out there will not require a down payment, but most of them do.

Typically, you will still need to put down between 25% and 35% when using hard money financing. This is because the lenders still want to minimize their risk and like to see borrowers with some “skin” in the game. In addition, when you provide a down payment, it could allow for lower interest rates or for better terms for the loan.

However, there are some cases where you will not need to have a down payment through some of the hard money lenders. Borrowers who can finance the entire property will need to have excellent credit, and they will often need to have experience in the real estate. They will also need a very strong Personal Financial Statement (PFS).

Beware of Dangerous Lenders

Still, you may see some hard money lenders who are offering a loan without a down payment. Borrowers who see options that are outliers, they should be wary of those lenders. There are a few, trustworthy lenders that might be willing to finance a loan without a down payment, but they tend to be rare. As the old adage goes, if it sounds too good to be true, it probably is.

Borrowers should always take the time to research the lenders they are considering, and they should be well aware of the terms of the loan before they sign. Research ensures that you are not working with a predatory lender. Find a reputable, quality company or a private lender that can provide a hard money loan with reasonable terms and a good rate.

H&O Capital Funding has helped countless real estate buyers, sellers, lessees and lessors achieve their goals. Our legacy is unwavering commitment to the communities we serve. Houlihan & O’Malley Commercial Real Estate Services specializes in four distinct, yet overlapping, areas of business: Commercial Brokerage services, Private Mortgage services, Appraisal Services and Advisory services.

For more information on loans that we offer, visit our website.

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