Using Hard Money For Down Payment?

[Mikael Winkler]

Hello all, 

I'll begin by saying I am new to REI and am currently exploring creative financing options. Thus far, I have been looking at small multi family properties, that I would owner occupy and use the FHA 203(k) loan product, which requires you live there for a year. However, properties in my price range, being newer to investing and having to leave room for a manageable rehab budget, have been primarily in rougher areas. For myself, I wouldn't mind living in a rougher area, but I'm engaged and worry more about putting my fiance in an unsafe situation. Sooo, I've begun to think more about my non owner occupied options.

This has led me to begin researching hard money lending. Essentially, my situation is this. I've been looking at properties that are within my price range, with conventional loan down payment being the one issue. My question becomes, is it feasible to utilize hard money for a down payment and rehab cost, while maintaining the mortgage through a conventional lender? My plan would be first and foremost as a rental. Rehab the property, and cash out refinance to repay the hard money lender. I would also not be opposed to a flip. 

I already have a good relationship with a conventional lender, who's already shown willingness to potentially get creative. So, any plan I decide to pursue, I'm going to make sure everyone on my team is on-board and understands going into the deal. I simply am just looking for any insight on using hard money in this way.

Thanks everyone!

[Darren Budahn]

Unfortunately I don't see your plan as currently stated working. Both lenders are going to want to be in first position. Not to mention your conventional lender won't let you borrow the down payment.

If you can buy below market and are confident about the numbers you could buy the property all cash with hard money and then refinance out once the rehab is completed. Check with your lender to see what they require for seasoning.

Or you save up for a down payment on a 1-4 unit property and go the FHA route. You would only need about 3.5% down. Of course you must owner occupy this.