If you’ve been looking for an owner-occupied hard money loan for your primary residence in Washington state, chances are you’re not having any luck finding a lender. The reason is that Washington state’s mortgage licensing requirements work against owner-occupied consumer purpose hard money loans in favor of investment property business purpose hard money loans.
In this blog post, I’ll tell you why the laws make it next to impossible to find an owner-occupied hard money loan in the state of Washington and where you should focus instead to obtain financing.
Let’s get started.
Hard money lenders and mortgage brokers in Washington state don’t need a license to offer business purpose loans, which include loans secured by a rental property, fix-and-flip project, a homebuilder financing spec home construction, or an owner-user commercial building.
However, unlike surrounding Oregon, Idaho and California, private money and conventional lenders in Washington state do need a Consumer Loan Company License to secure a mortgage against a primary residence or second home, also called a consumer purpose loan.
Many lenders don’t want to go through the hassle of licensing and reporting requirements just to provide an owner-occupied hard money loan. The result is few – maybe just a handful – of hard money lenders in Washington have Consumer Loan Company Licenses (or Mortgage Broker Licenses for brokers.)
It’s an unintended consequence of regulation that improves the situation for many consumers, while adversely impacting a small contingent who need this loan program.
The only hard money lender with this license – at least that I knew of – closed down in the Fall of 2022, and I haven’t found another owner-occupied hard money lending source since. Looking for an owner-occupied hard money loan in Washington state is like trying to find a needle in a haystack – it’s next to impossible.
Below are a few recommendations to pursue instead of an owner-occupied hard money loan.
If your contingent offer on a new primary residence has been accepted, but you haven’t accepted an offer on your departing residence in Washington state, buy now, sell later financing may help ease the pressure to perform on your contingent offer.
Buy now, sell later financing allows homeowners to cash out up to 80-90% of the equity in their departing home using a bridge loan in second position. These funds can then be used for a down payment on the new home.
Some lenders will require that you use their services for both the second loan on your departing home and the first mortgage on your new home. Other lenders will handle the second mortgage on your departing home but dictate list price adjustments (e.g. lowering the price) at predetermined milestones (3, 6, and 9 months), or will buy the home from you at a specific price.
FCTD has worked with several of these lenders and we know the ins and outs of how they operate.
Since owner-occupied hard money loans don’t really exist in Washington state, you should look for properties that offer seller financing if you have bad credit.
Sellers carrying a mortgage on their former home don’t need a Consumer Loan Company License like a hard money lender, and aren’t held to the same licensing requirements. The seller can sell you the house and carry back a mortgage for a few years.
FCTD has refinanced a few Washington state homeowners out of their seller-financed loans and into long-term bank financing two or three years after the purchase.
If your credit report has numerous delinquent payments, charge-offs, repossessions, foreclosures, etc., you might want to spend a year working to improve your credit before applying to buy a home.
It’s nearly impossible in today’s market to buy a house with bad credit. Lenders want a minimum 580 FICO score for an FHA loan, and even with that, it’s going to be tough to get approved and close on a home.
Spend some time, money, and energy boosting your credit scores above 640 – and preferably above 680 – before applying for a mortgage on a new primary residence.
If your credit is fine, but your income is too low to qualify for conventional financing, see if a family member would go on the loan with you as a non-occupant co-borrower. This family member would need good credit, very little debt, and sufficient income to help you achieve the debt-to-income (DTI) threshold you need to qualify.
A few years ago, FCTD refinanced a seller-financing loan on a primary residence in Washington state into a 30-year fixed mortgage, with a family member as a non-occupant co-borrower. The borrowers were under pressure to perform on the seller financing, and since they planned to move out of state in a few years, the non-occupant co-borrower situation was temporary.
Adding a willing and financially sound family member as a non-occupant co-borrower is a good option to explore.
Conclusion
Owner-occupied hard money loans are not an accessible financial product in Washington state, due to regulations that discourage these lenders from operating in the consumer loan market. Save yourself the time and hassle and explore other options that can help you finance your home. Solid alternatives include “buy now, sell later” financing, seller financing, improving your personal credit, or adding a non-occupant co-borrower to your loan application. You’ll have to work within the rules and get creative, but consumer purpose financing on your primary residence or second home in Washington state is achievable.