A Brief Guide to Hard Money Lender License Requirements
A career in real estate investing can be lucrative when done right. One of these paths is becoming a lender for hard money loans, which are short-term loans that can be used to refinance a loan or purchase an investment property. Hard money lenders are typically private lenders who aren’t affiliated with a financial institution, and they use the property as collateral to back the loan.
If you’re wondering how to become a hard money lender, you’ve come to the right place. Let’s explore the rules of hard money lending, how to become a lender, and the requirements you’ll need to meet to earn a license.
Rules and Regulations of Hard Money Loans
Unlike traditional mortgage lenders, the rules for private money lending are less defined. This is because hard money loans are often privately made between the borrower and the investor. Many lenders may think they’re exempt from regulations by state or federal banking laws, but that’s far from the truth.
To determine which rules and regulations apply to an investment venture, you’ll refer to the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA). Both of these acts impose compliance requirements on lenders, which can result in stiff penalties if commercial property financing is mistakenly categorized as exempt.
You’ll also need to follow your state’s regulations regarding rates for hard money loans, taxes, fees, and payment periods. It’s important to note that each state has different requirements, so you’ll need to be aware of each state’s regulations to ensure you remain compliant, especially if you’re operating across multiple states.
What Are the Requirements for a License?
Some states require a license to operate, whereas others don’t. It’s always best to check with your state’s Department of Real Estate for specific requirements. It also depends on the firm or agency you want to partner with and their regulations. For example, in California, you can get your license from California’s Department of Real Estate; however, you must have a broker’s license and additional licensing to become a lender for hard money loans.
A few additional requirements you may need include:
- A minimum net worth
- A history free of crime and absent of sanctions by a regulatory agency resulting from fraud, dishonesty, or deceit
- A detailed business plan consistent with that of a private money lender
- A surety bond
When Can You Lend Hard Money Loans Without a License?
It depends on the state in which you make the loan. Some states don’t require you to have a license but do have regulations to become a private money lender. You must comply with each state’s banking laws to charge within the regulated rates and know the limits of how much you can lend.
How to Get Started as a Hard Money Lender
In addition to the requirements above, there are a few basics to becoming a hard money loan lender that you’ll need to follow:
- Establish and register your business
- Obtain the right registrations, licenses, and permits
- Determine your lending focus
- Network or use a peer-to-peer platform to find potential investments
Your Source for Unmatched Private Money Lending Expertise
If you’re considering exploring your options as a lender for hard money loans, you’ve come to the right place. Our team at Val-Chris Investments has nearly 50 years of experience in the private money lending space. By working with a trustworthy team with plenty of experience in commercial property financing, you can gain valuable knowledge directly from the professionals.
Contact us today to learn more about private money lending and becoming a lender.
