Hard Money For Down Payment

Last Updated: September 25, 2025

For single-family rental (SFR) investors targeting 1-4 unit residential properties, leveraging financing is a cornerstone of building a portfolio. One approach some investors consider is using hard money loans to cover the down payment, aiming to enter deals with minimal personal capital. While this strategy might seem appealing, it introduces significant risks that can jeopardize financial stability and long-term success. This article explores the dangers of using hard money for down payments, the mechanics of 100% Combined Loan-to-Value (CLTV) financing, the implications for Debt Service Coverage Ratio (DSCR) loans, and the critical role of liquidity and equity in risk management.

What is Hard Money Lending?

Hard money loans are short-term, asset-based loans provided by private lenders or firms, typically used for real estate investments. Unlike traditional mortgages, hard money loans are secured by the property’s value rather than the borrower’s creditworthiness. They come with higher interest rates (often 10-15% or more), shorter terms (6 months to 3 years), and significant fees, reflecting their riskier nature. For SFR investors, hard money is commonly used for acquisition or rehab financing, but some consider it for down payments to achieve 100% CLTV financing—covering the entire purchase price with debt.