Hard money loan for my personal home as collateral??

Question

I was wondering if anyone can help me out on a Hard money loan question in the Tucson Arizona area.

Well like any real estate investors starting off I run into another roadblock..

To keep my story short:

• I want to focus right now on my first flip to invest in buy and hold.
• I teamed up with a local wholesaler for the acquisition/deal flow
• I have been networking with a local hard money lender from the local REIA for financing.
• With trusted references and my network of construction workers. I could pretty easily have a team of rehabbed for the construction.
• I'm also fortunate to know a couple of really good real estate brokers for the disposition.

I really would like to work with the hard money guy that I know because he knows his stuff, he is honest and I think hes trying to mentor me. But when I asked if I can put my personal home as collateral for the hard money loan, he said his company does not accept personal homes as collateral for loans even though it has equity. He needs 20% down for any loan and as a construction worker with no deals under my belt. I don't have 20K to put down.

It would be ideal to get a hard money loan with my personal home as collateral and have the hard money guy that I know be a part of the deal somehow.

Is that possible?

Is a hard money loan with a personal home as collateral even viable?

Is their such a thing as a hard money home equity loan?

Do I even make any sense?

Any feedback is highly appreciated, thanks in advance.

Bill Gulley · Answer

Minka has the right idea, use conventional financing from a bank for any equity loan.

Lending on you residence is a consumer loan, HMLs don't do consumer lending unless they go through all the compliance issues and most can't or won't go there.

I really don't like hearing that newbies use their residence so much for investing, you're risking your home! Probably fine if you can qualify without income from the project at all, qualify from your other income. Be careful, you're more likely messing up when you start.

Using a HELOC is fine for short term financing needs, not long term as these loans can be called or modified at the whim of the lender basically, read the fine print! :)

Tim Dreher · Answer

This is an area where I'm  learning as well. However, it is my understanding that it is acutely illegal for a hard money lender to loan to an individual. It is supposed to be a business entity.  So I would assume they would not be able to loan on a personal home. Only on one owned by that entity. I know once you have some experience  with a particular hard money lender many will do a line of credit a here they do not have interest on any specific property. That being said though they will look at your credit for that type of loan.

You may want to call around to some other hard money lenders as well. A lot do like to see some of your own funds bug I think you can get a lot better than 20% if the deal is strong enough.

You can also consider trying to find a private investor to do the loan.

Hope this helps. Like I said I'm  just learning about hard money as well. Sure someone with more experience here can shed more light.

Good luck

Jeff S. · Answer

I agree that using your home as collateral for a business you have no experience with is a bad idea.  On the other hand, this is legal.

Borrowing against your personal residence, where the use of the money is to start a business, is not a consumer loan (i.e. not for personal, family, or household use); it's a business purpose loan.  Most hard money lenders could make this loan if they wanted to.

Nor would the borrower have to be an entity.  It's perfectly legal to make a hard money loan to an individual for a business purpose (or for a consumer purpose, if the HML has the correct licensing).  HML's generally prefer loaning to entities since it helps avoid compliance, but this is a just business decision on their part.

I agree that a HELOC from a bank is likely your safest and most cost effective bet.  On the other hand, if this is something you are hard over doing Account Closed, you probably just need to find another HML.

Account Closed · Answer

Thank you Jeff S Na this really helps out. funny how a simple post and your guys feedback could of potentially saved me years of grief. Thanks again.

Account Closed · Answer

Bill Gulley I had that same thought swimming in the back of my mind i just needed to hear it from someone I guess. You are right, with a family i should be more conservative with my choices at leas starting off. Thanks again.

Account Closed · Answer

@Minka Sha (Can you take out a home equity line of credit and use that for your friend's 20 percent?)

Yeah that's what i was thinking but I'm rebuilding my credit so it probably wont be a year until I can do that. Also I have been relentlessly pursuing this for well over a year with nothing to show for but time away with my family. So I'm pretty hungry right now.

But i guess that's the name of the game right? Perseverance. lol

Anyways. You are the second time someone recommends that so I'm really going to look into that down the road. thanks again Minka.

Account Closed · Answer

Thanks @Tim Dreher I appritiate the feedback.

Bill Gulley · Answer

Should have said, except Cali, as that is not always true and you'll need to take care funds are not comingled, collateral is part of loan classification. And, we aren't talking about cross-collateralizations but a single loan made on a residence, HELC are not commercial loans regardless of the intended purpose of the loan. And, it's still a bad idea. :)

Hard money loan for my personal home as collateral??

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