Owner Occupied Loans and Prepayment Penalties
We have done several Newsletters on Owner Occupied Regulations and this one will be focused on Prepayment Penalties – are they allowed?
We want to touch on this as it came up during a California Mortgage Association (CMA) Convention we attended. The CMA is one of the leading associations in Hard Money lending in California. These quarterly Conventions feature attorneys as well as other prominent figures in the field of Hard Money lending. They discuss the myriad of regulations pertaining to Hard Money for the combined protection of the Investors and Brokers offering Hard Money loans.
The subject of Prepayment Penalties came up as there was a lot of confusion by Brokers and Lenders as to what was allowed and what wasn’t. The short and simple version is this…
Owner Occupied Business Purpose Loan: Prepayment Penalties are allowed and we will continue to offer them in our Trust Deed Offerings.
Owner Occupied Bridge or Temporary Loan (12-month term): These programs do not allow Prepayment Penalties. We do not include a prepayment penalty in our Trust Deed Offerings for these programs. We will continue to get the borrower’s Exit Strategy and include that information in our Offerings which will include how long the borrower expects to have the requested loan.
Owner Occupied Consumer Purpose 15 Year Loan (3 years interest only and then 12 years amortized): Prepayment Penalties are not allowed. We have never put penalties on this type of loan and that will remain the same.
Non-Owner Occupied Residences, Commercial Properties and Land: Prepayment Penalties are allowed and we will continue to offer them in our Trust Deed Offerings.
We are issuing this to inform all Investors of the current regulations and what we are following in our office, so we are all on the same page.
Most Hard Money Brokers do not offer Owner Occupied loans. They have been chilled by the confusion of regulations surrounding this type of loan.
Really, it’s not that tough to know the regulations and comply. Yeah, there are a lot of regulations, but my viewpoint is that you get educated on them and simply comply with the Fed and State mandates and then you can do these loans. So that’s what we do and that’s why I promote this type of loan.
I always have and will always do loans to homeowners that are owner occupants. It is an important segment of lending and a heck of a niche for my office.
These are generally very good loans with well qualified borrowers who are just shy of qualifying for a 30-year fixed rate loan from what we call “A” paper lenders like Wells Fargo, Chase or B of A.
In fact, banks and Credit Unions prefer these loans. They offer the borrower better rates for Owner Occupied loans over Non-Owner Occupied Loans.
And there it is – the Regulations regarding Owner Occupied Prepayment Penalties.
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