1. Only business purpose loans are available
Most hard money / private money lenders only offer business purpose loans. A business purpose loan is when a borrower uses the loan proceeds for investment purposes, such as purchasing an investment property or pulling out equity to invest in their business. On the other hand, a consumer purpose loan for purchase or refinance is any loan with a consumer element, including the purchase of a primary residence when the borrower cannot qualify for a conventional loan due to being self-employed, poor credit, foreign national, or a recent bankruptcy/foreclosure. Additionally, a consumer purpose refinance can be used to pay off credit cards, personal loans, tax liens, judgements, probate, or foreclosure bailout.
Marquee Funding Group is one of only a few lenders that offer both consumer and business purpose hard money loans for owner occupied and non-owner occupied properties. After the creation of Dodd-Frank in 2010, as a response to the 2008 financial crisis, most hard money lenders have shied away from consumer purpose loans due to the new regulations. The new regulations protect the borrower by having them demonstrate their ability to repay the loan by showing bank statements (popular for self-employed), W2’s, or tax returns. Other benefits to the borrower include no prepayment penalty, lower interest rates, and lower origination fees.
2. Only short term loans are available
Business purpose hard money loan terms typically range from 1-5 years. On the contrary, consumer purpose hard money loans have loan terms of 10-30 years that fully amortize. The longer loan term for consumer loans allows the borrower to have lower monthly payments and a lower debt to income ratio. Another benefit of consumer hard money loans is that there is no prepayment penalty (borrower can pay off the loan at any time with no additional fee).
3. Only 1st Trust deeds are available
Most hard money lenders only offer 1st trust deeds / mortgages. This is because there is less risk / lower loan to value presented to the lender. Unlike other lenders, Marquee Funding Group offers (first) 1st, (second) 2nd, and (third) 3rd trust deeds / mortgages. The loan position flexibility gives the borrower more options.
For example, a borrower might have a conventional 1st mortgage, but might also need a 2nd mortgage for consumer or business purpose. A 3rd mortgage might be useful if the borrower needs additional funds but already has a conventional 1st mortgage and a 2nd heloc. Offering 2nd and 3rd mortgages provides the borrower the ability to leverage the equity in the property to maximize their return on investment.
Many private lenders have the borrower payoff other loans so they are in the 1st position, though it may not be in the best interest of the borrower. For example, if the borrower has a 1st conventional loan at 4%, and the private loan is at 8%, it does not make sense to payoff the 1st. Marquee would provide a small 2nd behind the existing 1st because it saves the borrower money with the lower rate 1st and with smaller origination fees (paying for a small loan instead of taking out and paying for a new big loan).