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Feb 26 2018
  • By wpengine

Are owner-occupied home hard money loans different from all other types?

Hard money loans differ from conventional loans in many ways. A hard money loan is secured by real property to protect against borrower default. With conventional loans, the creditworthiness of the borrower is the protection against default. Sometimes these are called last resort, or short-term bridge loans. They can be used to finance property until the person qualifies for a conventional loan.

There are many more rules for owner occupied properties, than for those that are not owner occupied. Hard money loans for owner occupied property have regulations that differ from state to state. For owner occupied property income must be verified with third-party to determine the borrower’s ability to repay the loan. In addition, this is considered a high cost loan that requires property taxes to be escrowed and hazard insurance for the loan for the first year. Another federal requirement is that borrowers participate in a credit counseling class prior to signing the loan paperwork. Owner occupied properties take longer to foreclose upon than non-owner-occupied properties. These regulations are for the protection of the home owner and do not apply if the loan is for a property that is not occupied by the owner.


Hard loans are not offered by traditional banking and mortgage institutions. They are typically financed by private investors using their own funds or a line of credit. One difference between hard loans and conventional mortgages is that a conventional mortgage is typically sold to a larger banking institution. With a hard loan, the original lender keeps the loan throughout its duration.

With hard loans, you can usually close in a shorter time than it takes to close using a conventional mortgage. Closing usually takes place on a hard loan within a week or less. These types of lenders typically have more relaxed standards for underwriting than traditional lenders. This is because the loan is secured with real property.

Financial Differences

Hard money loans offer the highest interest rates of any loan type, even above subprime loans. They are typically considered short-term financing for people who have poor credit but have equity in their property. These types of loans are riskier for lenders because the properties are usually distressed. The average hard money loan has terms from between three and five years.

Rather than having a significant down payment, hard money loans require that the borrower has a significant amount of equity. Many lenders require at least 25% or more in a home owner’s equity. Because the creditworthiness of the borrower may be questionable, these are highly risky loans with a high rate of default.

Things To Consider

The most common scenario for a hard loan is someone who wants to buy and renovate another property, or flip and refinance it. They are also used to buy rental properties. Hard money lenders do not have to follow the same rules as traditional financial institutions.

Many lenders will consider the market value and potential resale value of the property as a primary concern for deciding to a loan. They want to make certain that they can get their money back if the borrower defaults and that they do not get stuck with a property that is unsellable.

Hard money loans can be used to make an existing purchase offer more attractive because the sellers will get their money sooner and will not have to go through all of the regulations required by a traditional mortgage. In some cases, a cash offer can help the buyer negotiate a lower purchase price.

One of the main advantages of a hard money loan is that it allows borrowers who have had issues in the past obtain the cash that they need. The borrower can access their funds even if they have a low credit score, low income, or have had dings in the past. For owners who live in their home, they can use hard money loans to finance additional purchases, renovations, or repairs. This may make the attractiveness of the loan more enticing for lenders because it will increase the value of the property. The most important consideration for owner occupied properties is to do your research before signing.

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