home investment

Is It Possible to Buy a Home with a Hard Money Loan?

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You are looking to buy a home for your growing family. You’re not sure about your ability to get a mortgage from a bank or mortgage broker, but one of your friends suggests you look into hard money loans. But is that even possible? Can you get a hard money loan to buy a home? Maybe.

Actium Partners is a hard money lender based in Salt Lake City, UT. They write loans in Utah, Colorado, and Idaho. They say that it is rare for hard money lenders to write loans for single-family homes as primary residences. But rare does not mean impossible. Although Actium does not make these types of loans, they acknowledge that other hard money lenders do.

What is hard money?

Before you even consider a hard money loan to buy a house, you should familiarize yourself with what hard money actually is. It is not bank financing. A hard money loan is not a mortgage. Know that going in.

Hard money takes its name from the fact that borrowers have to offer some sort of hard asset to provide security for a loan. In the case of a property transaction, the property being acquired is that asset. Buying a house with hard money means offering that property as a guarantee that you will pay what you owe. If you do not pay, you put the property in jeopardy. Exploring financing options for home purchases? FHA Mortgage Loan Processing professionals offer valuable insights on alternative avenues, like hard money loans, enabling aspiring homeowners to secure properties swiftly. Their expertise ensures a seamless transition, providing comprehensive guidance for those considering unconventional financing routes. Discover a spectrum of possibilities with their adept assistance.

What are the advantages of hard money loans?

Hard money has its advantages, which is why real estate investors prefer it as a funding option. It’s top three advantages are:

  • Asset-Based – As already explained, hard money lending is based on asset strength. As such, lenders are not so concerned about income, credit history, credit scores, etc.
  • Paperwork – Hard money lenders do not require as much paperwork. Just a few documents and you’re all set. On the other hand, banks can require dozens of documents.
  • Speed – Hard money loans can be approved and funded extremely quickly. A couple of days is normal, though some lenders can work as quickly as 24 hours. Speed can be a tremendous help in a highly competitive market.

The other thing about hard money is that an approval letter is just that: rock solid approval. On the other hand, even a preapproval letter is no guarantee from a bank. Anything can go wrong during underwriting to scuttle a conventional mortgage.

What are the disadvantages of hard money loans?

Hard money loans have their disadvantages as well. At the top of the list are higher interest rates. Hard money loans tend to be at least a few percentage points above conventional loans. They need to be for the mere fact that they are more risky. Other disadvantages include:

  • LTV – Hard money loans tend to have lower loan-to-value (LTV) ratios compared to conventional loans. Practically speaking, this means that borrowers need to come in with a larger down payment. LTVs as low as 50% are not abnormal.
  • Terms – Hard money loans have noticeably short terms. Two years is about average. Getting one with terms beyond three years is nearly impossible.
  • Interest Only – Hard money loans on real estate tend to be interest only loans, meaning you only make interest payments until maturity. At maturity, you need to come up with the entire principal you borrowed.

Hard money loans to buy primary residences are not all that common. They do exist, but they are the exception to the rule. Should you decide to apply for a hard money loan to buy a house, be incredibly careful. Know exactly what you are getting into before you do it.

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