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What is a Consumer Purpose Hard Money Second Mortgage?

What is a Consumer Purpose Hard Money Second Mortgage?

A consumer purpose hard money second mortgage is a loan where the loan funds, or proceeds from the loan, will go toward a personal use, such as paying off personal credit cards, financing a wedding, or taking out a second mortgage to make home improvements to a primary residence. 

This article covers what you need to know about consumer purpose hard money second mortgages, including:

What is the Definition of a Consumer? 

The Consumer Financial Protection Bureau (CFPB) defines a consumer as “an individual who obtains or has obtained a financial product or service from you that is to be used primarily for personal, family, or household purposes.”  

A mortgage intended for a consumer’s personal use includes a loan on a primary residence, second home, or a cash-out refinance on an investment property where the loan proceeds go toward personal uses like personal credit cards, personal income tax liens, or to pay for a wedding. 

What is a Hard Money Second Mortgage? 

A hard money second mortgage is a loan in second position behind a first mortgage, which has a senior lien position recorded on title. Hard money "seconds" are usually short-term, ranging from 6-36 months, and come with higher costs and interest rates than conventional second mortgages issued by banks, credit unions, or traditional mortgage lenders.  

Examples of Consumer Purpose Hard Money Second Mortgages

Below are several examples of consumer purpose hard money second mortgages for personal or family use: 

We've encountered so many more scenarios over the years, but the list above contains the most common requests. 

Very Few Hard Money Lenders Offer Consumer Purpose Second Mortgages

It's very difficult to find a hard money lender that offers consumer purpose second mortgages. The regulatory requirements for consumer purpose loans are much higher than for business purpose loans. Hard money lenders function to provide short-term bridge loans or construction loans to real estate investors, developers and business owners who need quick financing and/or aren’t eligible for a long-term bank loan. 

Consumer loans require a lender to document income, ability-to-repay (ATR), and comply with other state and federal laws that don’t apply to business purpose loans. Hard money lenders aren’t logistically set up to do this — and also don’t have any compelling reason to make consumer-purpose loans.  

A quick caveat: in California, there are a few hard money lenders that will provide consumer purpose hard money loans. We refer these loans out to lenders who have second mortgage private money loan programs. 

Outside California, I don’t know of any lenders taking on consumer purpose second trust deeds.  

FCTD Doesn’t Originate Consumer Purpose Hard Money Second Mortgages

Since our lenders don't originate consumer purpose hard money second mortgages, FCTD doesn’t work on them. For California, I'll refer people to other brokers and lenders with the capability to fund the loans. But FCTD’s focus is mortgages for real estate investors, which are business purpose loans for our borrower clients, most of whom are home builders, real estate developers, full-time house flippers, or business owners. 

Conclusion

A consumer purpose hard money second mortgage is difficult to come by since most hard money lenders don't offer loans for personal, family or household uses. Hard money lenders stick to business purpose lending, which is well-suited for their target clients: home builders, real estate investors, and real estate development professionals who need construction financing or short-term bridge loans to keep their business moving forward.  

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