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Loan, Real Estate

Navigating Owner-Occupied Loans

Hard money loans are a quintessential means of raising capital for real estate projects. While it can be a crucial aid in renovating distressed properties, it can also be a great asset for owner-occupied properties. If you are someone looking to purchase your first home and find that securing a traditional loan does not work for you, hard money can be your best bet for securing the property of your dreams. Here we will discuss what to expect in an owner-occupied journey, and how to successfully navigate the purchase of your residential property.


What is an Owner-Occupied Property?


An owner-occupied property is one where the loan borrower is the primary resident of the home. In most cases, this means that the borrower lives on the property for 70% of the time, and works within a typical 50-mile radius. As the lender assumes the borrower is the primary resident, this loan form does not count for second homes, vacation homes, or homes for family members. In terms of hard money loans, investors consider these safer lending options as the borrower must be the primary resider. This opens doors to first-time homeowners looking for a change in residence – and can be a great asset to securing a home.


What to Expect

Owner-occupied hard money loans are different from traditional loan forms, and therefore have different expectations regarding loan approval. However, there are a few key things to be aware of as you navigate your owner-occupied journey:


  • LTV Ratios: The loan-to-value ratio is the loan amount vs the appraised value of the property. When looking to secure a hard money loan, you can typically expect a lower LTV ratio than traditional loan forms. Hard money loan LTV ratios typically hover around 60-75%, in comparison to over 80% for conventional loans.

  • Larger Down Payments: With lower LTV ratios comes higher down payments. Typically, hard money loans for owner-occupied properties have higher down payments as there is a greater risk for the lender. Since the collateral of the loan is the property itself, lenders expect to see commitment from the borrower. Typical down payments range from 25-30% for residential properties.

  • Credit Score: One of the benefits of hard money for owner-occupied properties is that background checks are less stringent for borrowers. This means that there is less focus on the borrower’s personal financial history in order to secure the loan, which can open doors for borrowers who do not qualify otherwise. However, a good credit score does signal to lenders that the borrower is financially trustworthy, and therefore is something to still consider. Successful repayment of the hard money loan can also contribute to positive credit building.

  • Location/Property Type: Another consideration is the location and type of property. In most cases, owner-occupied loans are some of the most lender friendly as they are considered ‘low risk.’ However, if renovation needs to occur this may be a factor in who will lend as this incurs more risk. Furthermore, the location of the property also matters when securing an owner-occupied loan. In California, for example, lenders can foreclose since the property is a deed of trust in the state. Other locations may rely on mortgage foreclosure, which makes the default process harder for lenders.

  • Experience: The final factor to consider is experience. If you are a first-time borrower, lenders may not consider you due to lack of experience. In these cases, finding companies that have experience within the area can be your best bet as a new-time borrower. With over 28 years of personal lending experience, JMJ Funding works to make home buying easier with collaborative loan borrowing processes.


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