With recent changes being made in the lending industry, owner occupied hard money has become increasingly difficult to obtain. Many hard money lenders who had made these loans in the past have stopped, choosing to only make loans for investment or business purposes.
Residential hard money can take two basic forms these days, consumer and non consumer. The distinction between these two qualifiers is important, so today we’re going to touch on the differences.
Generally speaking, many hard money lenders are shying away from consumer loans. These are loans made to consumers, for consumer purposes. Owner occupied hard money would be considered consumer, as the owner intends to occupy the property. That is pretty basic, and generally understood. However, there are other situations where a loan can be considered a consumer loan, even when it is not an owner occupied property.
The main test of consumer vs. non consumer loans comes down to the use of funds. If a borrower is going to use the funds from a transaction to buy a car, pay down consumer debt, send their kids to college, etc, it is considered a consumer loan. This is true even if the property is an investment property, simply due to the consumer use of the funds.
Non consumer loans are loans made for non consumer purposes. Examples of residential loans that are non consumer would be, for example, a fix and flip or a refinance of an investment property to cash out and purchase additional property. Many times these transactions are made to corporations or LLC’s, which is fine. Whether made to an individual or an entity, however, the use of funds is what truly dictates whether the loan falls under consumer loan guidelines.
For more information on owner occupied hard money and non consumer residential hard money, or to discuss any scenarios, please visit our hard money loans page.