Hard money for owner occupied rehab

[Jonathan Tavarez]

Hi BP fam.

I have been trying to understand this for some time, in my area hard money lenders won't do loans if the person purchasing the property with the loan plans to move to the property after rehab, what is the reason for this?  In my mind if I purchase a property with hard money then worst case scenario I refinance after 6 months and then do whatever with the property, is this a problem?

[Jeff S.]

Real estate loans for personal, family, or household use are considered consumer purpose loans, @Jonathan Tavarez. These require compliance with Dodd-Frank, TILA, RESPA, TRID, the SAFE Act, and a handful more. There will also be also licensing requirements in your state to make these loans, as well as an NMLS registration. To avoid the associated compliance issues, most private/hard money lenders will not make these loans and choose to focus instead on loans not for personal, family, or household use. These, by definition, are considered business purpose loans and do not fall under Dodd-Frank, TILA, etc., and are substantially easier to make.

Since your initial intent is to ultimately make the house your permanent residence, which is obviously a personal use, you are asking for a consumer purpose loan and this is why you’re being turned down. It doesn’t matter that you intend to refinance. Your initial use of the money is for a consumer purpose.

Any wise private/hard money lender (the terms are synonymous) will ask you to establish up-front and in writing, the purpose of the loan. This protects them in case you end up doing something that would have required consumer purpose compliance. It includes lying that the house will be non-owner occupied, but with the real intent of moving in.

Lying to a lender to obtain a loan, which could be considered fraud, is not normally a good idea.  That was some really bad and uninformed advice.