Is it possible to obtain 90% owner occupied hard money financing for a primary residence in California?

Last week, a mortgage broker emailed us looking for 90% LTV owner-occupied hard money financing for his client in San Diego County plus two points commission for himself. This request isn’t all that uncommon coming from a conventional mortgage broker. They sometimes send over a hard money loan request for one of their clients whose application was denied for FHA or conventional (Fannie Mae & Freddie Mac) financing. The reason for the denial is almost always due to a recent short sale or foreclosure, lack of down payment, and/or insufficient income. Do they want to know if we have some super secret 90% LTV owner-occupied hard money financing program for their clients?

Unfortunately, 90% LTV doesn’t exist in the owner-occupied hard money world. 80% LTV is a possibility but the borrower needs to be squeaky clean and four years removed from a short sale, bankruptcy, or foreclosure. Which, in most cases, the borrowers almost always have a recent short sale during the past 24-36 months that is keeping them from going to 80% LTV on the conventional loan.

And 90% LTV, it’s way beyond the scope of owner-occupied hard money loans. It’s even on the very high end of the fix and flip hard money lending spectrum. In the past four years, we’ve only done a handful of 90%+ LTV fix and flip loans (here’s one in Bellflower).

Now that that’s out of the way, let’s talk about what we can do for owner-occupied hard money financing. At the moment, we work with a few trust deed investor groups offering two types of programs.

The first is an 11-month bridge loan designed to help a buyer acquire the property quickly. This works best for the home buyer who had a short sale almost three years ago and who will be able to refinance into a conventional or jumbo loan as soon as the three year anniversary of the closing of the short sale occurs.

The second program is a 240-month owner-occupied hard money loan for the home buyer who may need the loan for a couple of years before they can refinance into a conventional loan. The newly self-employed buyer often uses this loan because they don’t have the two full years of self-employment under their belt or haven’t been declaring enough income on their tax returns to qualify for a conventional loan.

Below is pricing for the 11-Month and the 240-Month loans are as follows, using a $500,000 purchase price to give an apples-to-apples comparison:

11-Month Owner Occupied Hard Money Loan

  • $350,000 — Loan Amount (70% LTV)
  • 9.99% — Interest-Only
  • $2,913/mo. — Payment
  • 11 Month Term
  • No Prepayment Penalty
  • Closing Costs: 3.5 Points

240-Month Owner Occupied Hard Money Loan

  • $350,000 — Loan Amount
  • 9.75% — Interest-Only
  • $2,843/mo. — Payment
  • 240 Month Term
  • 3-6-9 Prepayment Penalty (to be determined by the underwriter)
  • Closing Costs: 4.5 Points

Owner-occupied hard money is not intended to be a long-term solution for a home buyer. It’s just like all hard money loans – a short-term solution until circumstances change (two years self-employed tax returns filed) or milestones are reached (3 year anniversary from a short sale). After that point, homeowners with hard money loans should be refinancing into a conventional loan, reducing their interest rate from the high 9.00%’s to the low 4.00%’s and making progress on paying down their mortgage.

Even though we cannot do 90% LTV owner-occupied hard money loans for buyers in California like the other mortgage broker requested, we can go to 70% LTV, giving a home buyer two options, an 11-Month or 240-Month loan program.