What are Hard Money Loans for Primary Residence? Residential Hard Money Made Easy
Buying a house to use as a primary residence can be a big decision. Your house plays an important role in your life, and it’s not absurd to want to live in your dream house. You and your family deserve a home where you can live your lives comfortably. Owning a house should improve your life, not add stress! However, your dream house might not always be within your reach financially. It’s common to need a loan to purchase a property, but what do you do if you can’t qualify for a bank loan? You might be wondering about other types of loans and if it’s possible to get a hard money loan for primary residence. In this guide, we’ll explain everything you need to know about residential hard money and owner occupied hard money lenders.
What are hard money lenders?
Hard money lenders are private companies that have funds from either private investment or equity. These companies generally offer loans and are a great resource for buyers. They act as an alternative to banks, as they don’t have the same requirements as banks and can be helpful for prospective home buyers that don’t qualify for bank loans. Since they don’t have specific charters the way that banks do, they can be less strict and bureaucratic. Private money lenders are able to be much more flexible than traditional banks and offer loans for a wide variety of different purposes. These companies will often provide loans to borrowers in need who can’t quite get a bank loan. Here at Hard Money Lenders IO, we provide different types of custom hard money loans for a wide variety of situations, mainly based in Florida. To learn more about hard money lenders, see “What are Hard Money Loans? Everything You Need to Know” and “How to get 100% Financing through Hard Money Loans”.
“Hard money lenders are private companies that offer loans and are a great resource for real estate buyers. They act as an alternative to banks but can be much more flexible.”
What types of hard money loans for primary residence are there?
Consumer Bridge Loans
Both types of loans are owner-occupied hard money loans. As described in the name, consumer bridge loans from hard money lenders provide funding to help you “bridge” the gap between buying a property and getting approved for a traditional mortgage. Essentially, a consumer bridge loan is a temporary solution to help you buy a house even if you don’t have a mortgage yet. These loans are designed to be short-term (usually a year or less) and have high interest rates, generally 10% or higher. You also will usually have to pay 2-3% interest up front. The interest is high because these loans are very risky for lenders, as they have to rely on you paying them back.
Learn more about consumer bridge loans here.
Long-Term Private Loans
Hard money lenders can legally only offer 30/30 loans for private money long-term mortgages, which must be paid off in full in 30 years. If you are struggling to qualify for a bank loan because of problems that will still be around a year from now, and so still won’t be able to qualify for a mortgage in a year, these loans may be your only option. For example, if you have a poor credit score that won’t be able to increase enough in the next year, or if you have inconsistent or unstable income, you likely will struggle to qualify for a bank loan and so can consider a long-term private loan to buy a house. This is a common problem for individuals that were unemployed for a large amount of time, regardless of finances or current employment status. However, long-term private loans charge high interest rates of 9% and points of 2-3%, and require that you pay interest up-front.
When should I get a consumer bridge loan?
If you have temporary issues that are holding you back from qualifying for a bank loan, which will be resolved in the near future, consider a consumer bridge loan. These are often used if you are in the process of selling your current primary residence but haven’t sold it yet. In this situation, you can use a consumer bridge loan to buy a new house quickly and then pay it off once you sell your current house. While banks would never allow this because you would need to have two mortgages at once, private money lenders recognize that you should be able to complete the process in a few months and obtain the necessary funds to pay back the loan and get a mortgage after selling your original property. In this way, owner-occupied hard money lenders can be very helpful. Consumer bridge loans can also come into play if you’re going through temporary legal proceedings, such as a divorce, or if you have short-term problems with your credit score that will improve soon (allowing you to qualify for a bank loan). However, be careful committing to a consumer bridge loan if you might not be able to pay it back within a year. If you need advice on your particular situation and what type of loan you should be looking for, feel free to contact Hard Money Lenders IO for personalized advice and answers to your questions!
What are the problems with hard money loans for primary residence?
Although residential hard money can be a great resource if you are unable to qualify for a mortgage, there are some situations where hard money loans might not be ideal for your needs. For example, if you are currently unable to afford to make a large down payment, you might struggle to afford paying for a hard money loan. Hard money loans have higher interest rates and a large down payment due to the risk involved on the lender’s side, which means you’ll end up paying more up front than you would with a traditional mortgage. If you’re not able to make a large payment like that at once, hard money loans might not be the route for you.
Additionally, be careful getting a consumer bridge loan if you aren’t completely sure that your current financial issues (whatever the reason is that you can’t presently qualify for a mortgage) will be resolved within the next year. A hard money consumer bridge loan is not an indefinite solution, and if you aren’t able to qualify for either a mortgage or a second consumer bridge loan within the year, you could risk losing the house that you just purchased. Residential hard money has many benefits and can be a great way to get help buying the house of your dreams, but it can also become expensive quickly if you are unable to pay back the full loan and interest.
“Avoid getting a consumer bridge loan if your current financial issues might not be resolved within the next year. You could risk losing the house that you just purchased.”
How do I qualify for a hard money loan for primary residence?
Unlike banks, which require a wide variety of documents to secure a loan, private money lenders focus on your income and the property in question. The home you’re buying serves as collateral in the loan, so lenders will want to know its value and the amount of equity there will be after closing. Hard money lenders mainly take into account the LTV (loan-to-value) of the property, which is the ratio of the amount of money you’re allowed to borrow divided by the value of the property. Expect a hard money lender to use a third-party to confirm your income, to make sure you can pay back the loan. Some hard money lenders may ask for further documents, such as bank statements, before approving you for a loan.
As we have explained, it is possible to use hard money loans for primary residence, through the use of consumer bridge loans and long-term private loans. Residential hard money differs in many respects from typical hard money loans, but is still a good option to pursue if you’re struggling to obtain a traditional mortgage and financing from a bank. You may be surprised by how easy and quick the process of using hard money loans can be! Here at Hard Money Lenders IO, we offer a wide variety of loans and design all of our loan programs to meet your specific needs. Check out our loan programs here for more information! Finally, if you’re interested in learning more about hard money loans for real estate investment, you can read all about it here.
Please contact a dedicated loan representative to see if you qualify today.
Adam Smith has spent the last 5 years in the Private Money Lending world helping real estate investors secure financing for their non-owner occupied real estate investments. When he’s not thinking about real estate, Adam is an avid Jazz music fan and fisherman.