So the other day I had an idea and wanted some feed back. I was wondering if it is possible to purchase a property with hard money and turn around the next day and refinance it with a refinance mortgage. Is this possible? What would be the drawbacks to such a deal (If it is even possible). Thank you in advance.
It would certainly be possible, the problem is the cost. Hard money is generally expensive up front, somewhere between 3 and 5 points. Traditional loans also usually cost a point. And then you have two sets of closing fees and what not. If you need the hard money loan to repair the house so you can refinance and then hold it, that's one thing. But if you're going to do the traditional refinance right afterward, just do it up front and skip the hard money.
I agree with @Andrew Syrios If you are going to do it so quickly you might as well skip the hard money as it will just cost you more money. Most hard money lenders have a minimum hold time so you are going to be making at least a months worth of payments on it and as mentioned above the point will add up quickly.
If you do a refi quickly the new lender will probably only use the price you paid. Not a new appraisal. And will inpose the same LTV limits as for a purchase money mortgage. So there is really no advantage to buying with the HML and a very real costs.
Where this strategy does makes sense is if you're buying a junker that needs rehab. Buy and fund the rehab with hard money. Then refi after six months or a year into long term financing using a new appraisal. Still expensive and probably doesn't translate into no cash out of pocket. But may well be less cash than if you bought with a 20-25% down mortgage and funded the rehab out of pocket.
Thank you very much for the information. I hadn't considered the closing costs and additional costs with the loans.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing