Owner Occupied & Residential Hard Money Loans
There are many circumstances which result in a borrower being denied a residential mortgage by banks and credit unions, causing the borrower to turn to a residential hard money lender to obtain a hard money loan for their primary residence:
- The borrower currently has poor credit
- The borrower has a recent foreclosure, bankruptcy, short sale or loan modification
- The borrower has less than 2 years of employment history with their current employer
- The borrower is self-employed
- The borrower needs a bridge loan for a primary residence
- The borrower is a foreign-national
Conventional Lender is Unable to Perform During Escrow
In some instances a borrower receives financing approval for a conventional residential mortgage, only to have the lender not be able to perform while in escrow. In a competitive real estate market this may result in the borrower missing out on the property as the seller may go with a backup offer.
To avoid losing the property, the borrower should consider obtain financing from a private money lender who can lend on residential owner occupied property. Private money lenders provide a much faster approval and funding process, which will help prevent losing the subject property.
Once escrow closes and the property is secured, the borrower will be able to refinance out of the hard money mortgage and into a lower cost long-term mortgage.
Hard Money Loans for Primary Residences
Business Purpose vs. Consumer Purpose Hard Money Loans
North Coast Financial is able to provide hard money loans for primary residences for both consumer purpose (hard money consumer loans) and non-consumer purpose. Most hard money lenders will not consider hard money loans for a primary residence. This is primarily because an owner occupied residential hard money loan:
- requires additional documentation
- requires additional regulatory licensing
- is subject to extra regulations
- has mandatory rescission periods which increase the time to fund the loan
- has additional risks the lender must assume compared to investment loans
Business Purpose Hard Money Loans
A small amount of residential hard money lenders provide business purpose owner occupied hard money loans. These types of loans are feasible when:
- the borrower already owns their primary residence
- the borrower has a sufficient amount of equity in their primary residence
- the use of the loan proceeds will be used for some business purpose
- Funding an existing or new business
- Purchasing an investment property
Consumer Purpose Hard Money Loans
Very few hard money lenders provide consumer purpose owner occupied loans (consumer hard money loans). A loan would be considered consumer purpose if the loan proceeds were used to purchase a primary residence. If a cash out refinance loan is taken out on an existing principal residence for personal reasons such as remodeling a home, purchasing personal items, paying down credit cards or other debts the loan would be considered a hard money consumer loan.
Regulators define a consumer purpose loan as one in which the proceeds are used for personal, family or household use.
Qualifying for Owner Occupied Hard Money Loans
Residential hard money loans on owner occupied homes which are consumer purpose are subject to federal regulations including Dodd-Frank. This requires the lender to verify the borrower’s income and debts. Income verification is usually accomplished by providing the lender with pay stubs, W2s or tax returns.
The borrower is also required to keep their debt to income (DTI) under a certain ratio. The borrower’s existing debts including other mortgages, car payments, credit card payments and other debts will be considered in the ratio as well as the new proposed mortgage obligations (mortgage payment, taxes and insurance).
Residential Hard Money Lenders
Residential hard money lenders (for investment or owner occupied properties) provide loans that are intended for short-term use only, generally a maximum of 3-4 years. Especially in the case of an owner occupied borrower, residential hard money lenders require that the borrower has a reasonable plan in place to obtain long term financing.
This usually involves taking the necessary steps to repair credit in order to qualify for a conventional loan or postponing applying for a conventional loan until the mandatory waiting period after a significant derogatory credit event such as a bankruptcy, short sale, foreclosure or loan modification has passed.
The Fannie Mae minimum mandatory waiting period after a pre-foreclosure, bankruptcy or short sale used to be 4 years. The minimum mandatory waiting period for these events has recently been shortened to 2 years.
Owner Occupied Hard Money Loans for 2nds
If a borrower currently has a conventional bank loan (1st loan) on their property and has enough equity they may be able to take out a 2nd loan against their home. Homeowners often choose to take out a hard money 2nd against their property when they aren’t able to qualify for a Home Equity Line of Credit (HELOC) or a Home Equity Loan (HEL) but still need to borrow against their property’s equity.
The interest rate on a hard money loan is higher than on a HELOC but a consumer hard money loan would be considered a financially wise decision if the loan proceeds are used to pay off credit cards or pay down other types of high interest debt.
For more information on 2nds, please visit our Hard Money 2nd Mortgages and Trust Deeds page.
Private Money Lenders for Residential Owner Occupied Property
North Coast Financial is a private money lender for residential owner occupied property located in California. The borrower must have strong income which can be verified with tax returns, W2s or pay stubs. The borrower’s debt to income ratio must remain at a reasonable with the new proposed monthly loan payment in order to meet the current federal regulations.
The borrower must also have a down payment of at least 25-30%. A larger down payment will increase the likelihood of having the loan approved. Current credit scores must be considered for private money loans for a residential owner occupied property. The credit scores must be at a level that are capable of being repaired and increased to a point which will allow the borrower to refinance into a conventional long-term loan within 1-3 years.
Contact North Coast Financial Now to inquire about an owner occupied loan.