Hard money loan refi

2 Replies

we are looking at a property to purchase and I have a question on converting out of a hard money loan.  Here are the numbers on the property (we are looking to buy and hold)

Purchase 70k

Arv 110000

Rehab 15000

My wife and I have great credit, cash reserves (40k), no debt, so I assume we would qualify for loans (currently waiting for my 2 year mark at my commissioned job).  From what I know the hard money loan gives 70% of arv, so 77k.  I'll take the 77k pay for the house and after closing costs have a little bit of cash left.  Rehab the property with our own cash out of pocket and then my question comes with refinancing the property to a conventional 30 year loan.  I assume they want a 75 percent loan to value loan, so does that mean they would give me a loan of 82,500, which allow me to pay off the hard money loan of 70k?  I am just confused on how this process works, we are about a month out of looking for properties and I just want to make sure I know what I'm getting in to. 

@Benjamin Voorhis  Once you buy the house using hard money, rehab it then you can refinance the property to a conventional loan at 75% LTV with a new appraisal after 6 months from purchase.

You of course have to have the income to qualify for a conventional loan.

Upen Patel, Mortgage Banker

Federal NMLS# 1374243

@Benjamin Voorhis - it works more or less like you describe.  However, in some cases, the hard money lender may require you to bring the balance of the rehab budget to closing and they put all the rehab money (theirs and yours) in escrow.  You start the repairs with your own money (if using a GC expect pay 1/3 to 1/2 up front) and then request draws from escrow as repairs are completed.  Typically there is an independent inspector who comes to verify the items completed (and there is about $100 fee for each inspection/draw).

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