Am I able to privately lend funds from my HELOC?

2 Replies

Thanks for taking a moment to answer this question. Do I have to be a certified lender in order to lend out funds from a HELOC? Own property free and clear, would like to lend offering interest only payments, max 6 month term. (Likely best for flips, clearly.) I believe it depends on the state you're in, yet am unsure if HELOC private lending would fall under the regulatory rules or no? Best way to set this up, if allowed? TIA!

You’re actually asking a few questions, @Susan Pearce , but you didn’t provide enough info for a thorough answer.

Some states require a license to make business purpose loans, such as for flips, and some don't care. Some provide a licensing exemption if you loan your own money and/or make just a few loans a year. HELOC money would generally be considered your own money. So would refinance money, which might make more sense, in your case. You didn't mention the state you want to loan in.

California, for example, requires a license to make business purpose loans, but doesn't require an NMLS registration. There is a licensing exemption if you just do a few loans per year and don't hold yourself out as a lender. The source of the money doesn't matter. These can be HELOC, personal savings, or even self-directed retirement funds as far as CA is concerned. Your state could be different.

The normal answer would be to suggest you speak to a lending attorney knowledgeable in the state you want to loan. There’s a lot more to lending than just some legal questions, however. Since you’ve never done this before, you might instead talk to some larger local hard money lenders to see if they sell their performing loans or take on investors.

A knowledgeable HML will be able to answer your questions, know how to evaluate a flip and the flipper, and ensure legal compliance. They will have vetted paperwork and the appropriate license to properly originate the loan. This will include evaluating the title report, specifying lenders title insurance as well as your borrower's hazard and fire insurance requirements, and working with escrow, title, or a closing attorney, as appropriate. I suggest you do this for at least your first few deals. (Not a solicitation, we don't do this.)

Best of luck to you, Susan.

Thanks so much for your very thorough answer. I know the potential is there to utilize my equity to help others while helping myself. The plan is to do it without getting my butt in a wringer. LOL! The property is in Oklahoma. I'll follow your advice and do some investigating there. Your answer gives me specifics to consider and investigate. Thanks again! 👍

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