Whether you need help purchasing a home or are looking to collateralize your residential property for quick cash, getting a conventional loan may not be that easy. Banks and other traditional lenders have to adhere to inflexible qualification guidelines specified by federal and state governments—they cannot fulfill a home mortgage loan unless they have adequate documentation to back up the lending decision.
Owner-occupied hard money loans (also called hard money loans for primary residence) are one of the best non-traditional borrowing options for people who cannot qualify for regular home loans. Even people with sound financial health consider hard money loans because they’re approved quickly and require far less paperwork than federally backed or FHA (Federal Housing Administration) loans.
In this dedicated guide, we’ll explain:
- How hard money owner-occupied loans work
- When to go for such loans
- How to qualify for them
We’ll also check out the best borrowing practices that keep you secured in the primary residence hard money loan market.
Hard Money Loan for Primary Residence–A Well-Regulated Consumer-Purpose Loan
Hard money loans can be business-purpose or consumer-purpose loans, with the former being the more popular type. Hard money loans for businesses facilitate all kinds of profit-motivated transactions like flipping properties, constructing factory units on commercial land, and buying rental properties. Because the borrower’s cash flow can easily be predicted or guaranteed, most hard money lenders prefer business funding. Some don’t even accept non-owner-occupied properties as collateral.
Hard money loans for primary residences are called consumer-purpose loans because the borrower isn’t looking to make a profit out of the deal. These loans were easy to acquire in the early 2000s when the country was enjoying a demand-driven housing bubble. Unfortunately, the market caved in after the mortgage meltdown in 2008, causing thousands of homes to go into foreclosure.
In order to manage the crisis, lawmakers passed the Dodd-Frank legislation to prevent (with the sentiment to protect) consumers from taking mortgage loans beyond their means to repay and avoid losing their homes in the process. The decision also impacted the owner-occupied hard money lending industry.
Source: Kindel Media
Are Owner-Occupied Hard Money Loans Hard To Get?
Owner-occupied hard money loans are comparatively difficult to serve from a lender’s viewpoint. A residential home means the property wouldn’t generate cash flow, so the lender has to take additional measures to verify that the borrower can keep up with the monthly payments.
Beyond that, lenders also factor in the overall inconvenience and moral discomfort that comes from the borrower defaulting. State eviction and taxation laws come into play while foreclosing on owner-occupied properties, so it takes a while for the lender to recover the investment and associated costs.
You’ll find only a handful of private investors and lending institutions who are willing to take the risk and provide owner-occupied hard money loans. Florida-based Hard Money Loan (HML) Solutions is a high-rated lending group that actively provides easy-to-manage hard money loans for primary residences with full legal compliance.
Hard Money Loans for Owner-Occupied Properties—Terms
Owner-occupied hard money loans have terms and conditions similar to any other hard money loan. The general idea is that you have higher interest rates and a shorter repayment period than a regular mortgage. Here’s what to expect:
|Loan Component||Owner-Occupied Hard Money Loans|
|Interest rates||Hard money home loans usually carry interest rates between 8% and 15%. If you ask for a high LTV (loan-to-value) ratio (which relates to the amount of your loan as compared to the appraised value of the property), you may have to pay up to 22% as annual interest. The lender may ask you for:|
Interest-only scheduled payments (with a lump sum principal payment at the end of the term)
Amortized (interest + a portion of the principal) monthly payments
|Repayment terms||Hard money home loans have a term of six months to three years. Because of the high default risk involved, hard money lenders typically don’t do 15-year or 30-year mortgages|
|Other costs||Other cost components of owner-occupied hard money loans depend on the lender. Some common charges include:|
Initial processing fees
Property appraisal fees
Prepayment penalties (the amount you pay when you repay a loan before it matures)
Hard money loans for self-occupied properties can be approved within one to two weeks because the paperwork requirement and due diligence are less stringent than with traditional loans.
Source: Kampus Production
When To Consider an Owner-Occupied Hard Money Loan
Owner-occupied hard money borrowing is not only for people who cannot qualify for traditional home mortgages because of a poor credit score. This type of financing is a creative solution for various situations where a bank loan can be denied, such as when the borrower:
- Is self-employed
- Has declared one or more bankruptcies in the past
- Is a foreign national
- Has a divorce lien on their property
- Cannot fund the down payment for a traditional loan
- Wants to purchase a home after selling their current home
- Has a 1031 exchange deal
- Has had a recent foreclosure
- Desires business funds by using their self-occupied house as collateral
Owner-occupied hard money loans are also highly sought-after due to the inefficiency of traditional loans. Traditional lenders require massive paperwork, and because of the slow-paced processing, it takes them about three months to fund a mortgage deal, which is not conducive to the competitive real estate market. The wait time can cause property prices to escalate by as high as 30% or cause the borrower to lose the deal to another prospective buyer.
If you make a home loan deal with a hard money lender, you get access to the funds fast. You can complete the purchase and refinance the hard money loan with a regular mortgage loan in a few months.
How To Qualify for an Owner-Occupied Hard Money Loan
What primarily qualifies you for an owner-occupied hard money loan is the property used as collateral. The lender will look at the latest appraised value of the asset and your LTV requirement to determine if they can fulfill the loan request.
Because it’s a consumer-purpose loan, lenders will also verify your ability to pay off the debt. It’s a basic exercise in common sense covering a quick check of your assets, income source, and existing liabilities—nothing too complicated.
Once your loan is approved, you may be asked to maintain a standard debt-to-income (DTI) ratio for the outstanding term so that the lender remains compliant with federal or state laws, as the case may be.
Source: Tierra Mallorca
Need Easy Hard Money Loans for Owner-Occupied Homes? Reach Out to HML Solutions
HML Solutions group comprises seasoned investors and entrepreneurs who’ve been in the real estate industry for years. They are quick to recognize lucrative deals and are ready to finance any loan request if the applicant presents quality collateral with a decent amount of equity in the property.
HML Solutions stands out from other hard money lenders because they operate on the principle of profit-minded helping rather than mindless profit making. The experienced team offers well-thought-out flexibility in terms of the loan package.
Every borrower is reviewed carefully and presented interest rates and other terms that suit their situation the best. In case the lenders have to reject an applicant due to legal restrictions or otherwise, they try to guide them toward other borrowing solutions (subject to availability). Apply for an owner-occupied home loan with HML Solutions to have a realistic discussion about your situation with the team.
Common Lending Terms at Hard Money Loan Solutions
HML Solutions provides terms that enable a comfortable borrowing experience for the purchase of all types of real estate, including:
- Single-family units
- Multi-family units
- Construction, reconstruction, and rehab
- Acquisition of bank-foreclosed real estate
Source: RODNAE Productions
The group offers refinancing, bridge financing, and cash-out financing, among other options.
You can refer to a summary of the typical terms in the following table:
|Loan Component||HML Solutions Loan Package|
|Principal||$100,000 to $50,000,000+|
|Interest rate||9.99%–12% (fixed, i.e., the same interest rate applies throughout the term)|
|Installment type||Interest only (no amortization)|
|LTV offered||Up to 70% of the lower of:|
Current appraised value
|Funding time||3–14 days|
|Origination fee||2 points or 2%|
|Prepayment penalty||No penalty if repaid after 6 months|
The basic lending framework above also applies to other packages offered by the HML group, such as loans for:
- Business acquisition
- Fix and flip deals
- Startup funding
- Property investment
- Short sales
HML Solutions—Customer Ratings
HML Solutions holds a track record of fully satisfied customers. The group has 5-star ratings and multiple positive reviews on Google. Some of HML’s customer-focused policies include:
|Transparency||Applicants and clients receive communication about matters concerning them without delay. There’s no dilly-dallying if the lenders cannot service your request|
|Easy documentation||HML Solutions requires only the basic paperwork about your property and, in certain cases, your source of income|
|Fast approval||If your property has been appraised recently and your title documents are solid, HML can approve your loan and allot you the funds within 3–5 days, which is an enviably fast servicing time according to industry standards|
|Tailored packages||An HML team member communicates and makes a customized deal with each client to suit their financial capacity|
Apply Today To Get Your Deal Moving!
A deal with HML Solutions starts with filling out an online application form. The approval process consists of three stages:
- Phone call—A lender will go over your application and call you to discuss the deal A–Z. If the logistics of your deal make sense, they will start the verification proceedings
- Verification—The verification process at HML Solutions is pretty quick. The team will appraise and evaluate the offered collateral and your repayment strategy or ability to repay (whichever applicable)
- Closure—You’ll receive the funds as soon as HML’s legal partners set up the loan docs
Source: Alena Darmel
Borrowing Tips for Owner-Occupied Hard Money Loans
Keep in mind that owner-occupied hard money loans come with the risk of you losing your home, especially if you’re dealing with an unethical lender. Here are some tips consumers should follow to protect themselves:
- Avoid lenders who disregard property appraisal—Hard money lending depends on the value of collateral, so it’s highly suspicious if a lender wants to lend to you without evaluating your property and checking its paperwork
- Question everything you’re charged—Initial lending costs should be reasonable and enough to meet preliminary expenses
- Double-check before signing bonds—Certain hard money lenders ask you to sign documents that say you won’t reside in the property during the loan term. This type of bond protects the lender in case of defaults and is totally unfavorable to the borrower
- Have a reliable repayment strategy—Hard money loans have a short repayment window, so make sure you arrange the necessary cash flows on time
The lenders at HML Solutions are driven by consumer well-being and never make promises they can’t keep. Apply online to have them take an objective look at your funding situation.
Featured image source: MART PRODUCTION