You are looking to buy your first home. You have been to every bank and credit union in town but cannot seem to arrange a mortgage. You have tried mortgage brokers too, but no luck. Then someone suggests you get a hard money loan. You start digging around only to be more confused than when you started. Now you have but one question: can I purchase a primary residence with a hard money loan?
Yes, no, or maybe.
Are you even more confused now? If so, you are not alone. There are tons of articles online describing hard money in so many different ways that it can be hard to keep up. The reality of the hard money game is that lenders are free to operate their businesses as they see fit. Hard money lenders are private lenders, so they don’t have to follow the same rules that apply to banks and credit unions.
With that said, we can look at the three possible answers in a bit more detail.
1. Answer #1: Yes
It is entirely possible you could find a hard money lender willing to loan on a primary residence. Such lenders are rare, but they are out there. They do essentially the same thing as a bank or mortgage lender: provide a certain percentage of the sale price while expecting you to make up the difference with a down payment. They can offer terms ranging anywhere from 5 to 30 years.
Taking on a 30-year hard money loan probably isn’t in your best interests due to higher rates and fees. You might be better off finding out why you cannot get a conventional mortgage and then working to overcome whatever barriers are in your way.
2. Answer #2: No
There are hard money lenders who will not touch residential properties, let alone primary residences. In fact, that’s the case for most lenders in the hard money space. Actium Partners, out of Salt Lake City, Utah, is one such lender. They do not lend to individual home buyers looking to buy primary residences for one simple reason: the reward isn’t commensurate with the term.
Hard money lenders tend to be more aggressive and less risk-averse than banks. As a result, they expect returns that are both substantial and fast. Mortgages on primary residences are usually between 20 and 30 years, which is far too long for a hard money lender who prefers terms of 1 to 2 years.
3. Answer #3: Maybe
Hard money lenders in the first two camps typically have very rigid business models. They purposely limit themselves in terms of the types of projects they will invest in. But occasionally, you run across a hard money lender that will look at everything – even though they will not always invest in every project they see. These types of hard money lenders are open to just about any possibility.
They can be persuaded to loan on primary residences if the return is there and the terms are favorable. Needless to say, all of the other standard guidelines apply. Lenders will only lend a certain percentage of sale price, borrowers have to come up with a down payment, and standard points and fees will be charged.
There is no black-and-white answer to the question of whether you can buy a primary residence with a hard money loan. The best you can do is give it a shot. If you find a hard money loan, count yourself lucky. If not, do not be surprised. Hard money lenders are very particular about what they do. It comes with the territory.
