Hard money loans have a reputation as an asset for house flippers looking to sell their properties for a profit. While it is certainly true that hard money loans can provide the quick capital and less stringent underwrites to make flipping a success, there are other ways to utilize this loan form. Another way people take advantage of hard money loans is in owner-occupied properties, where borrowers reside in the property that the loan secures. If you are someone looking to renovate or secure a property to live in, hard money loans could also be a great option.

 

Owner-Occupied Properties, What are they?

 

Owner-occupied loans are loans used for the property the borrower in which the borrower will reside. This loan assumes that the borrower will live in the property for at least a year, and that they will be there for no less than 70% of that year. Oftentimes, the borrower needs to work within a 50 mile radius of their job, and sign documentation that they will be the primary resident in the property. Owner-occupied loans do not include vacation, secondary, or homes for beneficiaries. However, the hard money versatility coupled with owner-occupied benefits can make it an attractive option for residential properties.

 

Hard Money Loans and the Owner-Occupied World

 

When it comes to hard money loans, lenders are more likely to fund owner-occupied properties. This is because there is much less risk attached to a property the borrower wants to reside in than a place such as a farm or other commercial venture. This makes it easier to secure hard money loans for potential owner-occupied borrowers. Hard money loans do not require a fixed underwriting process, and the hard asset, or property itself, acts as collateral for the loan. Along with this, repayment periods are much shorter than traditional loan forms, with repayment normally 6 months to 2 years. This can make it an attractive option for borrowers looking to secure a property who may not have enough credit for a traditional loan, or are looking for a quick way to open cash flow.

 

Benefits of Owner-Occupied Loans

There are decisive benefits for owner-occupied properties. Here are a few of the top benefits:

1. Accessibility: Owner-occupied is less risky than other private lending ventures. Therefore, investors are more attracted to owner-occupied properties. Living in the home and maintaining the property attracts investors versus other lending options.
2. Homestead Exemption: Since owner-occupied encompass residential properties, there is the potential to secure a homestead exemption. This protects against creditors, but does not always apply as banks may secure the property if the owner defaults on the mortgage.
3. Property Tax Deduction: Owner-occupied as the primary residency means that in certain states, borrowers could be the benefactor of property tax deduction. This provides a higher cash flow for other opportunities.
4. Builds Credit: Arguably one of the most important aspects for obtaining loans, securing an owner-occupied loan and successfully repaying positively builds credit. This can lead to increased opportunities in the future to diversify your investment portfolio.

 

How to Obtain Owner Occupied Loans

 

Although hard money loans have less stringent qualifications, there are still things to consider when applying for owner-occupied loans. Here are a few things to consider before signing up:

 

1. Credit: It is true that credit is less important when applying for a hard money loan, yet it is still important to build good credit. Credit can allow you to also apply for future loans, and can be built through maintaining a repayment schedule for the loan. This can signify you are a trusty borrower, and make you more attractive to investors in the future.
2. Loan-to-value: One of the most important aspects of hard money loans, the loan-to-value ratio is the rate of the mortgage versus the appraised value of the property. The higher the down payment on a property, the more likely a lender will invest as it shows increased commitment on the borrower’s side.
3. Income: Not often highlighted with hard money loans, income is a key part of obtaining an owner-occupied property. In order to qualify for an owner-occupied property, you will need to submit proof of income to the lender. As with any property form, income is required to apply.

 

Bottom Line:

 

Owner-occupied loans are great ways to secure a residential property, primarily in terms of an easy-to-obtain, flexible terms hard money loan. When looking to secure an owner-occupied property, it is best to have a guide for terms of occupancy and more expectations. Finding a credible private lender, such as JMJ Funding, can be your key to successfully navigating the world of owner-occupied loans.