It is not unusual for Idaho hard money lenders to write loans for investors looking to add residential properties to their portfolios. As a result, consumers might be led to believe that a hard money lender is also a state-licensed mortgage lender or broker. That is not the case.
Hard money lending and traditional mortgage lending are two separate entities. Because of the way hard money firms operate, they don’t have to be licensed mortgage lenders or brokers. State law provides an exemption for licensing based on how hard money loans are written.
A Basic Summary
In Idaho, the requirement to have a lender or broker license to work on residential properties is in no way related to the intended purpose for any particular loan. In other words, the state isn’t concerned about whether the borrower is looking at a property as a commercial investment or a residence. The state is interested in how the loan is secured.
A hard money lender doesn’t need a mortgage lender or broker license to extend a loan that is secured by more than one family residential property. This is because the law doesn’t recognize such a loan as a residential mortgage.
Imagine a client coming to Actium Lending hoping to obtain a new residential rental with two units. As security, he offers the targeted property along with a second property in his portfolio. Since the loan is being secured by two properties housing at least one family each, the loan we approve is considered a hard money loan rather than a residential mortgage.
Why It Matters to Investors
If you are not sure why any of this matters to investors, consider how traditional mortgage lenders and brokers operate. They are constrained by certain rules and procedures that force them to do things in a particular way. As such, they are bound to:
- Determining a borrower’s creditworthiness
- Gathering a large volume of documents
- Following a slow and time-consuming underwriting process
If you have ever purchased a home, you know it can take as long as 90 days to get from approval to closing. An investor cannot wait that long to close a lucrative deal. In fact, speed is the most attractive factor in hard money lending.
We Get to Closing Faster
The way Idaho hard money lenders operate eliminates the need for a state mortgage lender or broker license. Not having to operate under such a license allows us to do things differently. Right off the top, we can base approvals on asset value rather than creditworthiness. This allows us to approve loans in as little as a few hours. We do not need weeks or months.
We also don’t have to run extensive credit checks or request a mountain of documents. We don’t have to look at tax returns, pay stubs, profit-and-loss statements, etc. The result is that our underwriting process is much faster. We can get to closing in a matter of days rather than months.
Hard Money Is Still Regulated
We need to point out that hard money lenders are still regulated in Idaho. The fact that we don’t need a mortgage lender or broker license does not mean we are free to do whatever we want. We still need to follow certain rules. It is just that these rules are different compared to the ones that apply to banks and mortgage lenders.
Idaho hard money lenders might write loans for residential investment properties, but the loans are not mortgages. The properties in question are investment properties. The loans used to acquire them are hard money or bridge loans.
