Owner Occupied Hard Money Loans

For real estate investors who are considering updating an owner occupied property or who intend to continue living in a property that they own, but renting out other units within the property, and requires financing to complete projects or transactions that are necessary, an owner occupied hard money loan may be a viable solution.

An owner occupied property is a property that serves as the primary residence of the individual who owns the property. For example, an investor who owns an apartment building and intends on living in one of the units would be considered an owner occupied property; a second home would also be considered an owner-occupied property.

What is an Owner Occupied Hard Money Loan?

An owner occupied hard money loan is similar to a standard hard money loan. Hard money loans are short-term, high interest loans that are secured with a real and tangible source of collateral; in regard to hard money loans that are used for real estate investments, the property that the investor is attempting to secure financing for would serve as collateral.

Unlike traditional loans, which are granted based on a borrower’s perceived ability to repay the lender and that perception is based on the borrower’s credit, because hard money loans are secured with collateral, the value of the collateral (for real estate investments, the value of the property) is more important to lenders than the borrower’s credit. Therefore, it is usually easier for real estate investors to secure financing; especially first-time investors or investors who have poor credit or no credit. Additionally, because the value of the collateral is used to determine eligibility, the process of securing a hard money loan is usually much faster than the process of securing a traditional loan; for the former, it can take as little as two weeks for the process to be completed, while with the latter, it can take upwards of a month or longer for the financing process to be completed.

An owner occupied hard money loan works similarly to a standard hard money loan; there are distinct differences, however. With an owner occupied hard money loan, the owner must establish that he or she will be living on the premises of the property that is being used as collateral for the loan; for example, an investor who is applying for an owner occupied hard money loan for an apartment building must prove that he or she will be living in one of the units when the loan closes. In this example, a real estate investor could use the financing provided by the hard money loan to fix up other units within the apartment building, list them for sale, and market them. An owner occupied hard money loan could also be used to secure financing for a second home, as long as the owner occupies the residence at the time of closing. The funds from the loan could then be used to repair the property and list it for sale while the owner is still living on the premises.

Benefits of an Owner Occupied Hard Money Loan

Owner occupied hard money loans offer a number of benefits for real estate investors. Because credit usually isn’t a qualifying factor for eligibility, those who have bad credit or no credit can secure the financing they require with this type of loan. Additionally, since the process is completed much faster than a traditional loan, investors can gain much quicker access to the funds they need. Furthermore, prepayment penalties usually do not apply to owner occupied hard money loans, so borrowers are not penalized if they pay the loan back early.