Why Do Hard Money Lenders Require A Down Payment?

Do you really need to worry about hard money lenders requiring a down payment? Often, this is going to be a requirement you will have to contend with. It is better to understand why this is the case, than to be surprised later with something you were not expecting.

Hard money lenders are particularly appealing to real estate investors. That is unquestionably a field of interest in which you do not want any unforeseen financial surprises. Understand what you are going to be getting with hard money lenders right out of the gate.

Hard Money Lenders and Down Payments

To be successful in the field of real estate investment, one must have a steady source of capital with which to make purchases, close sales, handle renovations and repairs as necessary, and more. While some lenders find real estate investors problematic, there are still some very good options out there for those who are just getting started.

If you have gained a measure of success with real estate, your loan options will become more versatile. However, and this is particularly true for those just starting out, hard money lenders are going to remain one of the most reliable options available.

Nonetheless, yes, you will probably need to give them a down payment.

Why Hard Money Lenders Require Down Payments

The main point of the down payment is to essentially mitigate risk. The lender asks this of you because then everyone is on the hook if the project does not work out. You are going to lose money. The lender is going to lose money. It is not a situation that anyone wants, but it gives lenders a measure of confidence.

With this degree of confidence, the odds of getting the money you need to fund your first or next real estate venture are going to climb considerably. Beyond hard money lenders, you have friends, private investors, other real estate investment experts, or family. Conventional banks can also be available to you in these situations, but that is not a guarantee.

The money being loaned to you is not completely secured via the as-is property in question. The lender can either sell the property at auction, make some improvements, and then sell, or simply walk away. A down payment offsets these concerns.

In terms of the specific amount, it can be anywhere from 10% to 50% of what you want to borrow. This figure can vary from one person to the next.