A question about investment loans

5 Replies

Good afternoon BP! 

I have a question for you all.  I'm still learning, so forgive my ignorance. I've heard the term "love money" and understand it to be money given or loaned from family.  After speaking with a bank, I have also learned that "gift money" as they call it cannot be used as a down payment to obtain financing for an investment. This makes me wonder two things ...

1. When people say "love money," does this only apply when the entirety of the price is covered outside of conventional bank financing? I know for a fact this rule does not count for a primary residence, as I know people whose parents paid 100% of their down payment and closing costs ... if only I could find something to House Hack in my area. 

2. If, instead, I had a family member willing to lend me a certain amount as a hard money lender ... is that also not allowed to be used as a down payment? 

I'm trying to get into this creative financing idea (since my work won't be buying me properties anytime in the next 20 years). I have a few relatives who may be willing to lend me money, but not enough to fund an entire purchase and rehab cost!

The funds have to season, if you don't season them you typically have to get a letter explaining where you go them from. I know for primary (no idea investment) that you can get letter explaining that the money is a gift NOT a loan and that's how you know people who's parents helped. Banks only look at the last few months of your bank statements....

Thanks Matt! Yea that was the impression I got. They check back 6 months!

Anyone else know about using hard money loans as a down payment? Or should I look for other options

Most lenders will, at some point, ask "is any part of the down payment borrowed.

Hard money lenders almost never accept second position.

Ok so to confirm, they do not allow you to use borrowed money as down payment in either direction.

I think I have it. I’ll have to reconsider my position then. I just read about people using hard money, then refinancing. I assumed hard money could be down payment for a normal mortgage but it seems that isn’t the case. I may need to find another hard money lender to get enough for purchase AND renovate costs

@Adam Britt the HML is not going to take second position but maybe you could convince your family to take second position on the funds being lent. Most lenders won't be thrilled to find out you have a cltv of 100% but you will find a few who don't care as long as their first position is secured. Best of luck.

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