Guide
Cross-collateralisation
Pledging a second property to support the loan can unlock leverage you could not otherwise get. It also links two assets so that one failing can take the other.
Cross-collateralisation means the lender takes a lien on another property you own in addition to the subject property. It is the mechanism behind most genuine "100% financing" offers, and it is a bigger decision than it is usually presented as.
Why lenders offer it
It solves their problem, which is exposure. If you want $250,000 against a property that supports $200,000, additional collateral bridges the gap without them exceeding their ARV cap on the subject. From their side it is straightforward risk management.
Why it can be worth doing
- It converts dead equity in a property you already own into buying power without a separate refinance, its own points and its own closing costs.
- It can get a deal done that is otherwise short on cash.
- It sometimes improves pricing, because the lender's blended LTV falls.
What you are actually agreeing to
- Release provisions. Ask what triggers the release of the second lien. Payoff of the subject? Reaching a value threshold? Nothing at all until the whole facility is repaid? Get it in writing.
- Existing financing on the pledged property. A new lien behind an existing mortgage may breach that mortgage's due-on-encumbrance clause. Check the first lender's documents.
- Tenants. If the pledged property is rented, a foreclosure affects them and may trigger obligations you have under the lease or state law.
- Insurance and title. Both properties need coverage and both need title work, which adds cost.
How to make it safer if you do it
- Negotiate an automatic release at a defined milestone - payoff of the subject, or the subject reaching a stated LTV.
- Pledge the property with the least strategic value to you, not the one with the most equity.
- Cap the pledged amount if the lender will allow a limited lien rather than a full one.
- Have a real estate attorney read the security documents. This is one of the few places in this product where that is unambiguously worth the fee.
Questions people actually ask
How much do you put down on a hard money loan?
Against as-is value, lenders typically go to 60% to 75%, so 25%-40% comes from you. On a purchase with rehab the more common framing is loan-to-cost: 80%-90% of the purchase price plus 100% of the rehab budget, held back and released in draws.
Do not confuse the down payment with cash to close. Points, flat fees, title, insurance and the first draw you fund yourself all sit on top. Ten to fifteen percent of purchase price is a realistic planning figure for total cash needed on a leveraged flip.
How much down do you need for a hard money loan?
See above - 10% to 20% of purchase is the usual range, before fees and reserves.
Does a hard money lender cover 100%?
Almost never on purchase price, and the offers advertising it usually mean something narrower: 100% of the rehab budget (common and real), or 100% of purchase where the purchase is far below as-is value and the loan is still inside the lender's ARV cap (rare and deal-specific), or 100% with cross-collateralisation against another property you own (real, and it puts a second asset at risk).
Treat a headline promising 100% financing with no cash as the marketing hook it usually is, and read what the offer actually caps at. See the truth about 100% financing.
How long do you have to pay off a hard money loan?
Terms run 6 to 24 months, with 12 months the most common. That is a hard deadline with a fee attached, not a guideline - which is why the exit matters more than the rate.
How do you pay back a hard money loan?
Three ways, and you should know which one before you sign. Sell the property and pay off from proceeds. Refinance into longer-term debt, usually a DSCR rental loan. Or pay it off from other capital. Most hard money loans are interest-only during the term with the principal due as a balloon at the end, so there is no amortisation quietly reducing what you owe.