This is indeed the question of the hour. Do hard money lenders require a down payment? Unfortunately, this question isn’t answered as easily as yes or no. Most of the time, the answer is “no.” But, that isn’t always the case. Let’s take a closer look.
First, understand that there is a difference between a down payment and needing money to start the deal off from the beginning. You will find that various lenders will require a certain percentage as a down payment, and as with any other loan, this percentage will be calculated based on your credit score. So, while a low credit score won’t necessarily keep you from getting approved for Arizona hard money, it may keep you from getting a low down payment or interest rate.
Remember that all Arizona hard money lenders are taking a significant risk in loaning money to you, and the certainly have to assess that risk to ensure they stay in business. If the lending institution or person decides to take a chance on you, the down payment will probably be calculated on a case-by-case basis. Ultimately, hard money lenders are trying to make a profit, not treat this as a charity case.
Again, this is not a charity deal on their part. They want to give you the money, but they do not want to end up losing money in the long run. Many times, Arizona hard money lenders will loan you an amount of about 60-70% of your LTV (loan to value ratio). That is a pretty significant chunk of money considering that they don’t have to give you any at all.
Sometimes customers consider that 30-40% gap between the actual purchase value of the home and the amount you are lent as a down payment. This is not the case. You will be required to come up with some of the money on your own, but it is not generally put toward the amount you owe on the loan.
For fix and flip projects, Arizona hard money gets even more complicated. Before you even apply for Arizona hard money, you will likely have estimated numbers in mind. You need to know how much the property is worth, how much the repairs will cost, and how much the property will be worth when it’s all said and done. Obviously, you are in this for a profit so that last number needs to be higher than the first two combined. When hard money comes into this situation, remember that the lenders may calculate things differently than you, and what they say goes.