Owner Occupied Hard Money Lenders Nationwide-Loans
To try and help explain exactly what a “Owner Occupied Hard Money Loan” is, I am going to split it up into two different pieces to try and make it easier to understand. This is how I personally had to learn it.
An owner occupied loan is a loan where the person that is receiving the loan, the one that will make payments on it, is going to occupy the property that it is for. They are going to occupy the property for business use. These loans are available as long as you will use the property to flip or for business use if long term.
This can actually be done within an apartment complex of up to four different units. Any type of four-plex would be perfect for this. You could live in one of the four units.
A hard money loan is typically used for real estate as a short term loan. This is normally funded by an investor of sort, instead of a bank. These loans have higher interest rates, but are only for about 12 months. They can be extended up to five years, but that would have to be discussed with the investor.
These loans can be taken as “collateral backed loan”. Meaning that the home loan is for, is the collateral. If the loan is not paid, then the investor will take their home back. It will affect the borrowers credit continue to make it harder for them to get a loan.
Combining the two definitions, turns out to be a loan that is used for real estate which you will be residing in. It will not be done by a bank, but by an investor. This loan will only last a year before it has to be paid back in full.
There are some minimal qualifications that you must reach in order to get one. Here they are:
- The borrower should have at least a credit score of 550+
- The borrower can have a recent bankruptcy, foreclosure, short sale, or a modification of their loan.
- The borrower can be self-employed.
- Borrower needs some liquid cash on hand for down payment and some rehab.
- The borrower must be a citizen of the United States of America.
- Two to three months of bank statements
- Prior real estate experience (owned, rented)
To better understand, let’s have an example:
Benjamin wants to get into flipping houses. He knows that there is money to be made, and he wants to be a part of it. The difficult part is that Benjamin has just recently filed bankruptcy due to his business going under. Due to that he now has poor credit, making it difficult for him to get qualified for any type of mortgage.
He has found a home that he wants to be able to flip. Benjamin knows for sure that he is able to flip the house in less than a year. The modifications will not be that difficult and he will do them all himself to save money on labor. The changes that will be made will keep the home in living condition.
Benjamin heard about owner occupied hard money loans, and immediately thought, YES. This works perfect for him. He can live in the home while renovating. He can pay it off over 12 months because he can flip it within that time frame.
An important thing to realize is that this kind of loan can be ideal for some people, but not for everyone. This can be very risky, but if it works out then the return should be great.
The benefit of having an owner occupied loan vs a non-owner occupied loan is a lot better than the average person would think. It actually provides a lower interest rate, and it requires less than a down payment. They are considered to be a safer bet for the lender.
The Details of an Owner Occupied Hard Money Loan
Having it be an owner occupied loan will decrease the interest rate. Like stated earlier, it is a safer loan for the lender if it is such. If it is safer, it will decrease the rate. This will help borrowers save money and increase profits.
Here are some of the average terms with such a loan:
|Rate||7% – 15%|
|Term||3 Months – 5 Years|
|Maximum Loan Amount||90% LTV* and 75 % ARV**|
|Down Payment||10% + of LTV to 25% + of ARV|
|Time for funding||Up to 15 days|
*LTV: Loan To Value – This is just a ratio that informs us of how much loan we are getting to the actual amount of the property value. There are maximum rates to make sure they can at least get some type of payment towards the property. Here is the formula:
LTV = (Size of loan) / (Property’s appraised value)
**ARV: After Renovation Value – This is the estimated future value of the property that you are purchasing. It is a calculated estimate for how much the home is going to be worth, once the renovations are completed. Here is the formula:
ARV = (Property’s purchase price) + (Value of renovations)
When they say that the maximum loan amount is 90% LTV – that means you must have at least 10% down payment and own 90% of it.
The rates are higher because this is a high risk of a loan for the lender. Borrowers usually will have a lower credit score. It has to be paid back within a very short time frame. If it is compared to an average mortgage, which has to be paid off over 30 years. Those borrowers have another 29 years to pay off the loan, compared to 12 months. It just makes more sense that it is higher.
How to Apply For an Owner Occupied Hard Money Loan
Because these types of loans are funded relatively quickly, you must have the documentation needed to quickly apply and get the funding immediately. There are a variety of Owner Occupied Hard Money Lenders Nationwide.
Online Application: You will need to inform the lender of what you are planning to do. The more specific you are, the more willing they are to continue on with the application process for your hard money loan.
Documentation section: After they continue on with the application, you will need to send them all the documents that they need to complete it. Here is a list of most of the documents that you will need to provide. Some may need others, but this list is pretty extensive:
- Application –
- Two – three months of bank statements
- If you have completed any real estate projects, include detailed descriptions of them
- Bids for contractors (experienced flippers may not need this)
- What you are going to do to the home. A list of renovations
- They should be checking your credit when applying
Shopping For Rates
This may be more difficult because it’s not your average type of loan that you will be getting, but it can still be done. I cannot stress the importance of getting the best rate. The amount of money that you could potentially save by getting a good rate is unreal. You save more money on the longer time frames, but you can even save money on a 12 month loan.
The more money you can save anywhere during the flipping process, the more money goes in your pocket when you are officially completed on flipping the nice new home. It’s fun to do, but we are in it to make some money.