Hard Money Lender Loan Financing

6 Replies

As a new real estate investor, is it advisable to use hard money lenders to fund the first deal? I already have an FHA that was used to finance my current home and trying to raise funds for a conventional loan. I have also began exploring other sources of financing and would appreciate any insight on using Hard Money lenders. Thank you all in advance.

@Brenda Akinyi I don't feel like most investors should be using hard money until much later in their career. I work with a lot of investors here in the Chicago burbs who house hack and look to use a lot of leverage, and hard money is not really a conversation I have with most of them until they have done 5 or 6 deals. It sounds like you are off to a great start. Work with your lending officer to figure out how you can refinance out of the FHA so you can use it again. Look around for portfolio lenders that can do low down payment loans. Hard money is.... really expensive!

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Hard Money is a great tool depending on the deal. In most cases, they require less of your money down and if you run the numbers correctly you'll be able to refinance into a conventional loan with none of your own money in the deal. 

Conventional lending is usually best since this will give you the lower rates and longer terms to keep your payment down. Also not having to deal with a balloon payment later on scrambling last minute to figure out how to get out (seen this many times). HML will be for when you have several properties and cannot qualify, or when you absolutely need cash out at a higher LTV.

It depends. Hard money is expensive. And if you have delays in your project and cannot refinance as expected, it will QUICKLY eat your profits. Double the time period of your project, and add 30% to the bid your contractor gave you. If you can still make a profit, I would pull the trigger.

Refi your FHA to get rid of monthly MIP and lower your monthly payment!

Just be aware that a refi starts the clock all over on the standard mortgage requirement of owner-occupying the property for the next 12 months.A lot of people get away with breaking this requirement and all the lender can do is accelerate your mortgage if they find out. NOT endorsing this though.

Also you should understand that any new property required with an FHA mortgage MUST be owner occupied. You can get a 1-4 unit property though.