This article offers homeowners alternatives to consumer purpose hard money second mortgages. Most private lenders don't offer these types of loans, as I explained in another article about consumer purpose seconds. My company, First Capital Trust Deeds (FCTD) receives several calls each month requesting consumer purpose hard money second mortgages. While we don’t offer them, we offer suggestions on where to look for financing if hard money lending isn’t a viable option.
The Consumer Financial Protection Bureau (CFPB) defines a consumer as an individual who obtains or has obtained a financial product or service to be used primarily for personal, family, or household purposes. This includes paying for personal debt consolidation loans, home improvement loans, college, a wedding, a personal judgment or income tax lien, medical bills, and more. The funds are for personal use.
Hard money lenders rarely make consumer purpose loans. Nearly all lenders only offer business purpose real estate loans for house flippers, home builders, or developers — or short-term, 12-month loans to businesses owners against their property in order to reinvest in their business.
Consumer purpose hard money second mortgages are really hard to find.
If you live in California, it’s easier than other states since there are so many hard money lenders there, with a few well established players that provide consumer purpose seconds.
However, it’s hard to find these types of loans in nearly every other state. I live in Central Oregon and I don't know of any hard money consumer second mortgage lenders in the state. I’m sure there are a few, but since it isn't a loan program I want to originate, I’m not seeking out lenders for this type of loan.
With that out of the way, let’s look at alternatives to consumer purpose hard money second mortgages.
Banks and credit unions are the ideal starting point for a consumer purpose second mortgage on your primary residence, second home, or investment property (if funds will pay off personal debts or go toward personal, family, or household use.) They offer fixed-rate second mortgages or home equity lines of credit (HELOCs), which often have an adjustable interest rate, but give you a 10-year draw period followed by a 15-year repayment term.
These institutions may require that you become a member by opening a checking, savings, or other type of depository account before you can apply for a mortgage. It might be worth it if you can get the financing that you’re seeking.
Coming off the 2008 Financial Crisis, peer-to-peer online lenders started making unsecured personal loans to consumers. Companies like Lending Club led the way with a platform for people to lend to one another, with Lending Club making and servicing loans.
Since then, more online peer-to-peer lenders have sprung up. Read this excellent article from Forbes magazine about it — which is well worth your time — and consider inquiring with some of the lenders listed.
Another route is to ask friends and family for a loan. I know not everyone has a generous and trusting friend or benevolent uncle who can lend money, but it’s something to consider. If a credit union or peer-to-peer unsecured loan isn't available, this may be your best option.
Conclusion
Even though I listed three options — bank or credit union, peer-to-peer lenders, and friends and family — the reality is there aren’t many alternatives to consumer purpose hard money second mortgages. The CFPB’s consumer lending guidelines curbed a lot of abusive lending practices that led to the 2008 financial crash — which is a good thing. However, with new laws and regulations come unintended consequences, such as less credit availability for consumers.
I’m certain that in time, new loan programs will emerge to provide consumers with credit and financing access for unmet needs in the market.