Every month or so, we’ll receive an application for a 12-month business purpose hard money loan on an investment property with plenty of equity to come in below the 65% LTV threshold. Yet during the process of underwriting the loan, we realize that what looked like a straight forward business purpose bridge loan on an investment property has now become a consumer purpose hard money loan.
This may not seem like a big deal to most people but in the hard money and private money lending world, where many of the investment funds and family offices lend for business purpose only, or non-consumer only, switching from business purpose to consumer purpose can instantly kill a loan.
So how does a 12-month bridge loan refinance on an investment property go from business to consumer?
In the past two weeks, we’ve seen the following business-to-consumer loan situations:
- Personal income tax liens from both California Franchise Tax Board and the IRS recorded on title.
- Personal judgments for consumer credit cards also recorded on title.
- Cash-out loan proceeds going to payoff personal credit cards or other personal debts.
- Cash-out proceeds going toward the down payment on an owner occupied primary residence.
Ultimately, we were able to work with our borrowers and switch the loan from one investment fund or family office that only does business purpose loans to other private trust deed investors who are set up to lend on consumer purpose loans. Luckily for our borrowers, the pricing stayed relatively the same, give or take ½ a point in origination fee and +/- 1.00% on the interest rate.
The best way for borrowers to safeguard against having what looks like a quick cash-out business purpose hard money loan to a little bit more difficult consumer purpose cash-out hard money loan is to know what might be recorded on title in the form of tax liens and judgments. The more detailed information borrowers can provide from the very outset can help their loan close within the one week from application to closing that we aim to achieve on refinances.