Can You Do an Owner Occupied Hard Money Second Mortgage?

The short answer is: “Yes.” Over the past year, we at First Capital Trust Deeds have been originating more and more owner occupied hard money second mortgages all throughout California.

Our borrower clients have been pretty strong with 650+ FICO scores and verifiable W-2 or self-employment income that shows their ability to repay the loans.  Borrowers must be able to clearly prove through financials statements (tax returns, pay stubs, bank statements, etc) that they can make the mortgage payments.

Another redeeming feature to these hard money second mortgages that we’re closing is that the Combined Loan-To-Value (CLTV) is usually less than 65% CLTV.  This means that if the home is worth $1,000,000, the combined balance of both the first and proposed second mortgage is $650,000 or less (<65% CLTV), this leaves the trust deed investor with significant protective equity in the property in the event of default, which we hope does not happen.

The trust deed investors we work with to fund the second mortgages on owner occupied homes are not in the “Loan To Own” business. Loan To Own means making a borderline predatory loan to a borrower who will most likely default and the lender can foreclose and take ownership of the property on the cheap.

No, these trust deed investors are usually professionals who do not work in the real estate business (doctors, dentists, CPAs, entrepreneurs, etc) who invest their savings through their self-directed IRA, profit sharing or pension plan, family trust, etc, into higher yielding notes secured by real estate.  They’re passive investors who are looking for yield on what is expected to be a short-term loan of 3-5 years.

They’re not property sharks looking to profit off someone else’s misery.

Marginal borrowers with a negative credit records or those who need to be bailed out of financial predicament are most likely to be turned down even if there is significant protective equity in the property.  It just isn’t worth all the future potential headaches that could occur someday down the road if the borrower slips into default.  Taking an owner occupied loan through foreclosure is very time consuming and expensive for trust deed investors due to all the new consumer protection laws that began in 2008.  Which is a good thing for both homeowners and for the hard money lending industry.