Is Using Hard Money for a Down Payment a Bad Idea?

[Jen Stekkinger]

I ran across an amazing deal on a duplex far below market and appraisal value. Only I dont exactly have the 20% down payment to purchase the property. The seller will not finance. Because I have a new mortguage (not enough equity) I need to wait one year. I could make the purchase as a second home and I was thinking of doing a hard money loan for 40K.  The hard money loan would be 6months used as a down payment. My bank would re-fi and pick up the loan in July. Is this an ok thing to do or are there issues I need to consider? Did anyone else finance this way? Or is this way to risky?

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Quote from @Jen Stekkinger:

I ran across an amazing deal on a duplex far below market and appraisal value. Only I dont exactly have the 20% down payment to purchase the property. The seller will not finance. Because I have a new mortguage (not enough equity) I need to wait one year. I could make the purchase as a second home and I was thinking of doing a hard money loan for 40K.  The hard money loan would be 6months used as a down payment. My bank would re-fi and pick up the loan in July. Is this an ok thing to do or are there issues I need to consider? Did anyone else finance this way? Or is this way to risky?

When you take out a mortgage you are asked where the money came from for the down payment, it's called "seasoning". If the down payment is borrowed it is counted as debt. Few if any lenders will allow you to have 100% financing (debt), especially with them in second position. If you default on the "hard money" first, the second (main loan) is at risk. They won't take that risk. But, you an always try. ;-)