Are you seeking a hard money loan secured by a primary residence and finding that no lender will consider it? In this guide, we’ll provide two alternatives to owner-occupied hard money loans, the typical terms for these loans, and how to find lenders that provide alternative lending solutions to homeowners.

Purchasing a home that you plan to live in, refinancing the mortgage on your primary residence, or getting an equity cash-out loan for personal expenses are all considered to be consumer mortgages. Due to strict government regulations and compliance requirements for consumer mortgages, private and hard money lenders do NOT offer loans for owner-occupied homes or 2nd homes.

There are a few exceptions in California and a few other Western states which we’ll cover in a separate piece. For this guide, we want to provide two alternatives for homeowners in most states throughout the country.

Non-QM / Non-Prime Mortgages

The first alternative is called non-QM, also known as non-prime. QM stands for qualified mortgage, so non-QM loans are those which fall just outside the standards of a traditional qualified mortgage. This includes loans for borrowers with low credit scores, self-employment, seasonal income, and other unique situations. One of the main qualifications for non-QM loans is showing the ability to pay. So you qualify based on income and your debt to income ratio. For income verification, some programs only require recent bank statements instead of tax returns.

If you are purchasing a home with non-QM financing, you’ll need to have a cash down payment of at least 20% of the purchase price. Also, as you probably guessed, Non-QM loans have higher interest rates and fees than traditional mortgages. However, they are not as high as private or hard money loans.

You can find a few non-QM lenders here on our website. Select ‘Residential Owner-Occupied’ from the loan type list, then enter a state or major metro area.

Home Equity Sharing

The second alternative to private lending for owner-occupied homes is equity sharing, also known as home equity contracts. This is only for cashing out equity on a home with amounts up to $500,000. It’s not for purchasing a home, although you can cash out equity on your existing home to buy another property.

The way it works is the lender will provide you with the cash out funds in exchange for a percentage of the home’s appreciation over a 10-year or 30-year term. So when the loan is paid off, the lender will receive the principal loan amount, plus a percentage of the increased value over the contract term, typically ranging from 15% and 35%.

One of the main benefits to the equity sharing program is you don’t have to make any monthly payments. The lender will put a lien on the house in 2nd or 3rd position, but it’s not a mortgage. You don’t pay any interest, but you will have to pay an origination fee. Here are the typical terms:

  • Loan Amounts: $30,000 to $500,000
  • Origination Fee: 2% to 4%
  • Maximum CLTV (combined loan-to-value): 80%
  • Minimum FICO Score: 600
  • Contract Term: 10 to 30 years
  • No Prepayment Penalty

These equity sharing loans are NOT available in all 50 states. As of late 2021, we’ve found it’s available in 19 states:

  • Arizona
  • California
  • Colorado
  • Connecticut
  • DC
  • Florida
  • Illinois
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • New Jersey
  • New York
  • North Carolina
  • Oregon
  • Pennsylvania
  • Utah
  • Virginia
  • Washington

How to Find Home Equity Sharing Lenders

We have a few of these equity sharing lenders on our website, but since these loans are not mortgages, you won’t find them in the lender searches.

  1. Click Services in the main menu to access our Service Provider directory
  2. Click Investor Services
  3. Look for the Filters section, click Home Equity Sharing
  4. View each company’s profile to learn about their program
  5. Click the green CONTACT button and reach out to the company directly

Please remind each company that you found them on PrivateLenderLink.com.