Can You Use Hard Money for a Primary Residence?

Buying real estate is a pretty significant purchase, whether you’re investing in an income property or buying your first family home. With that, there are several different ways to finance real estate, whether you go with a traditional mortgage loan, a hard money loan, or another financing option. Today, we’ll discuss when to use hard money loans, whether or not you can use hard money for a primary residence, and other options to consider depending on your purchase. 

Contents of This Article: 

• Why Do People Use Hard Money Loans?
• Can You Use Hard Money for a Primary Residence?
• Better Alternatives for Home Purchases
• Best Ways to Use Hard Money Loans
• Find the Right Lender for Your Investment

Why Do People Use Hard Money Loans?

Baltimore hard money loans are great for several reasons. Investors like them because they are short-term, easy to qualify for, and funded quickly. 

• Fast Approval and Funding- Hard money loans can be approved and funded within days, much quicker than traditional bank loans, which makes them great for time-sensitive deals.
• Financing Unique Properties- Hard money lenders are more lenient with their requirements, so they’ll usually fund properties that traditional lenders avoid.
• Flexible Qualification Requirements- These loans are asset-based, which means approval is mostly based on the property’s value rather than the borrower’s credit score or income.
• Short-Term Financing- Investors often use hard money to purchase, renovate, and quickly resell properties as a way to earn income.
• Bridge Financing- Borrowers can use hard money as a temporary solution while waiting for long-term financing or to cover gaps between buying a new property and selling another.

Can You Use Hard Money for a Primary Residence?

Generally, no, people do not use hard money for a primary residence. While technically, it’s possible, it’s not a common or recommended route for buying a primary home. Due to its high interest rates, short terms, and limited regulatory flexibility, hard money is primarily used for investment properties, like fix-and-flips or rentals. 

Using it for a primary residence is uncommon because certain consumer protection laws make it harder and more expensive for lenders to offer them to owner-occupants. That said, most lenders won’t allow it unless the borrower has an urgent, short-term need and a strong exit plan, such as refinancing into a long-term loan. 

Although it’s rare, a borrower might consider using hard money for a primary residence if they need emergency financing and can’t qualify for a traditional mortgage, are self-employed with irregular income, or plan to refinance ASAP. 

Better Alternatives for Home Purchases

While hard money loans are great for investors, they’re not really ideal for homebuyers. That said, if you’re looking to buy a home, here are some better financing options to consider. 

• Conventional Mortgage
• FHA Loan
• VA Loan
• USDA Loan
• Rent-to-Own Agreement

Conventional Mortgage

Conventional mortgage loans are the most widely used option for people looking to buy a primary residence. They are ideal for buyers with solid credit, stable income, and a significant down payment. Most traditional lenders offer competitive interest rates and flexible term lengths, usually ranging from 15 to 30 years. 

FHA Loan

An FHA loan is backed by the Federal Housing Administration and designed for borrowers with lower credit scores or limited savings. Down payments for these loans can be as low as 3.5%, making them great for first-time buyers or homeowners. These loans also allow for higher debt-to-income ratios than conventional loans. However, mortgage insurance is typically required for the entire loan duration, unless you refinance later on. 

VA Loan

VA loans are offered through the Veterans Affairs (VA), allowing eligible veterans and active-duty service members to purchase, build, or refinance a home. They require no down payment and typically have lower interest rates than conventional loans. Additionally, there’s no private mortgage insurance (PMI), which can save borrowers hundreds each month. 

USDA Loan

The USDA loan program helps low-to-moderate-income buyers purchase homes in designated rural areas.

It offers 100% financing, meaning no down payment is required, and reduced mortgage insurance fees. However, it’s important to note that there are other fees, including an upfront guarantee fee and an annual fee. That said, while location and income restrictions apply, it’s an excellent option for buyers looking for affordability outside of major cities.

Rent-to-Own Agreement

If you want to buy a home eventually but aren’t quite ready, a rent-to-own agreement could be ideal. This option gives buyers the chance to move into a home now while preparing to purchase it later. A portion of each month’s rent goes toward the eventual purchase price. This can be helpful for those building credit or saving for a down payment. 

Best Ways to Use Hard Money Loans

While hard money loans aren’t necessarily ideal for owner-occupied properties, there are several scenarios where they’re extremely useful. Here are some of the ways investors use hard money loans for their investment properties. 

• Fix-and-Flip Projects
• Bridge Financing
• Real Estate Auctions
• Cash-Out Refinancing

Fix-and-Flip Projects

One of the most common uses of hard money is for fix-and-flip projects. This is where investors buy a distressed property, fix it up quickly, and sell it for profit, making it easy to pay off their hard money loan quickly and efficiently. Hard money is ideal because lenders focus on the property’s after-repair value (ARV), not the current condition. 

Bridge Financing

If you need to act fast on a new property before selling your current one, a hard money loan can serve as a bridge loan. These short-term loans fill the gap between buying and securing long-term financing or selling another asset. They’re especially helpful in competitive markets where waiting for approval for a traditional loan can cause you to miss out on a deal. 

Real Estate Auctions

Properties won at an auction usually require full payment within days, which leaves nearly no time to secure traditional financing. Hard money loans can be approved and funded within days, allowing investors to meet tight auction deadlines. 

Cash-Out Refinancing

Hard money loans can also be used to pull equity out of an existing investment property quickly. For instance, investors use this option to fund additional purchases or renovations without waiting for a traditional bank to approve a loan. It’s a fast way to access capital that’s otherwise tied up in a property. 

Find the Right Lender for Your Investment

While using hard money for a primary residence isn’t usually recommended, depending on your lender, it may work in a pinch. That said, whether you’re flipping an investment property, need short-term bridge financing, or exploring unconventional real estate opportunities, finding the right lender is key.

We offer fast, flexible financing at Maryland Hard Money Lenders to help you reach your investment goals. Learn more about our lending process today, or fill out our initial loan application here.