Ocotal [1] has nearly a dozen cheap and spartan hospedajes. Backpackers will do fine in secluded 
El Viajero (seven blocks north and one block east from the bus station, tel. 505/732-2954, $10), offering TV, private bath, and Internet. A recent remodeling including an addition of 10 rooms also provides rooms with higher amenities for up to $20. It’s quiet and clean, and the service is exceptionally friendly in an area not really accustomed to tourists.
A favorite among travelers is Llamaradas del Bosque (south side of the park, tel. 505/732-2643, $18), a good value for the money. Hotel Bel Rive (west side of the highway across from the Shell, tel. 505/732-2146 or 505/732-3249, $15) has doubles with private bath, phone, TV, fan, and parking. This is a big step up in quality.
Mi Hotelcito just a few of blocks west of the main square and seven blocks east from the bus station (half a block east of the Hotel Viajero) is a great no-frills but very clean option with rooms varying in size and shape for $7–16 including TV, private bath, and hot water. Breakfast, lunch, or dinner served upon request for just a few dollars.
Just about one kilometer from the COTRAN on the first entrance to the city you see is the Hotel Ben Moral, a favorite for quality and price with rooms ranging $13–25, including private bath, phone, TV, air-conditioning, hot water, and Wi-Fi.
Ocotal’s finest is Hotel Frontera (just east of the Shell station, tel. 505/732-2668, $45) with private bath, phone, and TV, plus a slick poolside bar, conference room, parking, Internet, restaurant, and pleasant airy porches overlooking the city and mountains. More expensive rooms are by the pool, cheaper rooms are in the back.
Links:
[1] http://www.moon.com/destinations/nicaragua/esteli/ocotal