The first thing borrowers must understand about loans is that the PURPOSE of any loan DEFINES its category. This means that each loan nicknamed as a 'Specialty Loan' actually has a specific loan category that they fall under. We believe it's important to know with certainty what borrowers are looking for to maximize their time and effort.

Below, we'll discuss a few of the loan categories that Specialty Loans may be known to fall under, and why.

CONSUMER LOANS VS BUSINESS PURPOSE LOANS

Again, there is no such category in the real estate mortgage business known as "specialty loans". Consumer loans by definition are residential mortgage loans in which the primary use of the loan proceeds are for personal, family, or household purpose regardless of whether the collateral is owner or non-owner occupied. In example, a loan is for "personal use" when the proceeds are used to pay-off credit card debt, pay for college tuition, purchase a car or pay for that long awaited vacation. This is true, when the collateral is a one to-four family residential unit even if it’s a rental property or “non-owner” occupied.

The loan is presumed to be a “Consumer Loan” when financing a 1-4 residential property and the lender carries the burden of proof that the use of the loan proceeds are for commercial or business purposes. The lender must comply with all Federal and State regulations that encompass each loan and how they must document and underwrite the loan. These strict regulations were intended to protect borrowers in consumer loan transactions and to limit the loan terms available to the lender.

A common misconception when originating Business Purpose loans is that there are no rules and regulations, for these loans but in fact loans for business purpose are covered by Regulation B, specifically the Equal Credit Opportunity Act (ECOA) Valuations rule as of January 18, 2014. The new ECOA Valuations Rule amends the appraisal provisions of ECOA’s Regulation B requiring that lenders provide applicants for first-lien loans on a dwelling with copies of appraisals, as well as other written valuations, developed in connection with their loan, whether or not the applicant requests copies.

• Business purpose loans include buying properties to fix & flip, fix & hold, repairs to rental properties, etc. Some of these business loans may be called a Specialty Loan by some, but that is not a term or word the industry would use to describe a loan category. If the loan is originated as a business purpose the loan documents should contain evidence supporting this conclusion. In addition, a handwritten declaration or statement from the borrower stipulating the Purpose and Use of the Loan Proceeds is highly recommended.
  

• Hospitality loans. These are loans secured by motels, hotels, and restaurants; they are business loans but, because of their intricate particularities, it is understandable that some people may refer to them Specialty Loans.

• Rural Property Loans. These are loans secured by large tracts of land in rural areas and are usually bought for farming, ranching, hunting, or fishing purposes. One would potentially call them Specialty Loans because they are in a particular category of the type of business loans available. We, at AMI Lenders, do service these types of loans but watch out, not all Hard Money Lenders in Houston do, and that may be why some people call them Specialty Loans.

• Residential Lot Development Loans. These are loans used to finance the infrastructure, i.e., streets, underground utilities, signage, entrances, etc., to develop a tract of land that will be used for single-family residential lots. One could call them Specialty Loans because a residence itself is not the purpose of the loan. But again, they are not "officially" recognized as "Specialty Loans."

• Business Lot Development loans. These are loans to finance the infrastructure to develop business spaces, such as retail shopping centers, hotels, motels, hospitals, restaurants, etc. One could call them Specialty Loans because they are in a Special Category of the type loans we, at AMI Lenders, do, but, again, not every Private Money Lender in Houston does.

• Multifamily Loans. These are loans to finance or refinance apartments, townhomes or condominiums. One could call them Specialty Loans because they are specifically for these types of Real Estate investments and because again, they are in a particular category of the type loans we service at AMI Lenders.

To conclude, there is no official loan category called "Specialty Loans". For the most part, there are consumer loans and business loans, and most types of loans, as we saw above, will fall under one of these two categories. We believe people call them specialty loans because not every Private Money Lender in Houston services all the loans discussed above.

AMI Lenders does! For 30 years now, we have been helping people in Houston and surrounding areas get the financing they needed when nobody else could help them.

If you are looking for a Private Money Lender, don't sign on the dotted line until you've talked to AMI Lenders. Our rates are unbeatable, and our experienced and friendly loan officers will make sure you get the help you need. And, if we can't help you ourselves, we'll help you find someone who can.

Source of information: CFBP Compliance Guide 2014