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ForumsArrowBuying & Selling Real Estate DiscussionArrowCan you refinance out of a hard money loan?
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Can you refinance out of a hard money loan?

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  • Posts 119
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Melissa Harris
Real Estate Agent from Fort Collins, CO

posted over 3 years ago

My business partner and I have found a great deal for a buy and hold but it definitely needs repairs. We would like to use a hard money lender to finance the purchase price and repair cost. I spoke to one this morning and they can cover all of the purchase price and 90% of the repair cost, so we will need to bring $10,000 to the table at closing, which we are fine with doing.

My question is, can we refinance this property into a 30 year conventional loan and use it as a rental instead of selling the property? This would produce us $303/month in cash flow and have a 14.6% cash on cash ROI. If we did this, will a hard money lender allow for us to keep the property instead of selling it?

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Jack Bobeck
Rental Property Investor from Jacksonville, FL

replied over 3 years ago

@Melissa Harris You will want to ask the Hard money lender what their terms are. Most are short term loans for "bridge financing", but some may have other long term products. It sounds like you have a great property. Don't be worried if you find "secondary" property rates of 6-7% on 30 year products. The cost is so little compared to the conventional loans and often you have fewer hoops to jump through. Good luck with your investment! 

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Sean Blomquist
Lender from Blaine, Minnesota

replied over 3 years ago

@Melissa Harris yes you can.  Reach out to @Justin Cooper and he can explain how it works.

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Nghi Le
Investor / Lender from Seattle, WA

replied over 3 years ago

@Melissa Harris

You mean 90% of the purchase and 100% of the rehab, right?  I've seen many lenders offer this, but none the other way around because that's essentially 100% financing and no lender likes to do that.

Be careful about thinking that all the money you need is just 10% of the purchase price.  There are also things like closing costs, points paid upfront, prepaid insurance, prepaid interest etc.  Lenders also like to see 3-6 months of monthly interest reserves as well as enough money in the bank to start the rehab work (because the rehab is reimbursed in draws, not given up front).  I don't want you to get the property under contract and then get near the end and have the lender tell you that you don't have enough reserves in the bank.

If you plan on refinancing into conventional, you'll have to switch the title to your name (because I assume the HML will want you to take title in an LLC), and there are seasoning requirements. I suggest you plan this up front with a conventional lender before purchasing the property and make sure you're able to check off all the boxes to do this correctly.

As @Jack Bobeck mentioned, you also have the option of refinancing with a non-conventional lender. It'll be a little more expensive, but much easier to qualify for than the rigid rules of a bank, and you'll be allowed to have the loan in your LLC. Usually, they have less seasoning requirements as well. I've seen a few with no seasoning at all.

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Melissa Harris
Real Estate Agent from Fort Collins, CO

replied over 3 years ago

@jackbobeck thanks for the advice! I called the hand money lender and spoke to him about this and he definitely helped me on how this works :) 

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Melissa Harris
Real Estate Agent from Fort Collins, CO

replied over 3 years ago

@Sean Blomquist that is who I spoke too and when I called him back, he explained how this can be done :) Great guy!

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Melissa Harris
Real Estate Agent from Fort Collins, CO

replied over 3 years ago

@Nghi Le yes that is what I meant! Lol. Thank you very much for the heads up on all the other costs that I need to take into considerations, I only thought of a few of those, so I appreciate it! 

I will definitely look into talking to a non-conventional lender about refinancing end of things and how that really works with using hard money. 

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David Weintraub
Lender from Berkeley, CA

replied over 3 years ago

You don’t always have to take HML in a LLC.

Lenders aren’t concerned with how you pay them back, as long as you have a plan to.

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Jack Bobeck
Rental Property Investor from Jacksonville, FL

replied over 3 years ago

@Nghi Le So many options for funds without having to be tied to personal guarantees. I can get non-recourse loans, pay 6-7% on the notes, and be able to refi for 30 years. Its awesome! I don't care if the % is higher than conventional, the PITA factor is much less with non-recourse than the conventional side. 

We all know you have to have money....to make money. Its so true in the world of real estate. 

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Dillon Leider
from minneapolis, MN

replied over 3 years ago

@Jack Bobeck when you say the PITA factor and costs are lower with nonconventional lenders, does that mean closing costs are often lower?

Talking to one of these lenders, but haven’t talked numbers on closing costs.

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Jack Bobeck
Rental Property Investor from Jacksonville, FL

replied over 3 years ago

@Dillon Leider I always factor in at least 3% of the loan amount for closing costs. Lenders tell you what you want to hear when chatting with them, then once you get the HUD, they forget to tell you about all the "fees". So I use 3% as my factor. I learned that from my wife who is a Realtor. Hope it helps.

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Dillon Leider
from minneapolis, MN

replied over 3 years ago
Originally posted by @Jack Bobeck :

@Dillon Leider I always factor in at least 3% of the loan amount for closing costs. Lenders tell you what you want to hear when chatting with them, then once you get the HUD, they forget to tell you about all the "fees". So I use 3% as my factor. I learned that from my wife who is a Realtor. Hope it helps.

"Don't be worried if you find "secondary" property rates of 6-7% on 30 year products. The cost is so little compared to the conventional loans and often you have fewer hoops to jump through. Good luck with your investment!"

But Jack, you were saying that the costs of non-conventional underwriting is much less and that you have fewer hoops to jump through. What did you mean by that? My understanding is that these types of loans usually cost MORE than conventional/conforming.

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Melissa Harris
Real Estate Agent from Fort Collins, CO

replied over 3 years ago

@David Weintraub so we could take title under our personal names if we chose too? My partner and I will more and likely start an LLC, just to make things a little easier on our end.

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Jack Bobeck
Rental Property Investor from Jacksonville, FL

replied over 3 years ago

@Dillon Leider  But Jack, you were saying that the costs of non-conventional underwriting is much less and that you have fewer hoops to jump through. What did you mean by that? My understanding is that these types of loans usually cost MORE than conventional/conforming.

Much less PAIN, It took me 6 months to do a conventional with my history and my wife being a self-employed Realtor, it was one thing after another. Sure a non-recourse has a higher int rate, but its not 6 months.....usually. 

I'm done with conventional/conforming Freddie/Fannie products. I don't care if I save 2-3 points on the loan, its not worth the PITA! Hope that helps. 

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David Weintraub
Lender from Berkeley, CA

replied over 3 years ago
Originally posted by @Melissa Harris :

@David Weintraub so we could take title under our personal names if we chose too? My partner and I will more and likely start an LLC, just to make things a little easier on our end.

 correct. 

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Melissa Harris
Real Estate Agent from Fort Collins, CO

replied over 3 years ago

@David Weintraub great to know! Thanks

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David Weintraub
Lender from Berkeley, CA

replied over 3 years ago

Lenders don't want you to take loans in your personal names for a variety of reasons.

There are the legal aspects from their end, of having done a "commercial loan" to an individual.  You could find yourself in some hot water.

If there's a foreclosure, etc, they really aren't looking to see a borrower get crushed.

They will do it in situations where the seller requires a purchase by an individual. Lets say it's a 55+ community with strict rules, or a condo association that won't allow sale to LLC. In that case they can make exceptions. Not all of them, but some.

End of day, they will likely require the LLC unless there's a reason it can't be done.

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Melissa Harris
Real Estate Agent from Fort Collins, CO

replied over 3 years ago

@David Weintraub that makes sense! Now I can see why it would be important to hold title in an LLC. Thanks for the information.

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Melissa Harris
Real Estate Agent from Fort Collins, CO

replied over 3 years ago

@Anthony Palmiotto great to know! Thank you :) 

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Vincent Wright

replied over 1 year ago

Hey Guys, I'm have trouble trying to cash out refinance after I have finished the rehab. What company or companies do you recommend in the Louisiana area?

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Vincent Wright

replied over 1 year ago

Hey Guys, I'm have trouble trying to cash out refinance after I have finished the rehab. What do you recommend?

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Tim Johnson
Lender from Grand Rapids, MI

replied over 1 year ago

@Vincent Wright

Need to tell us more about the deal.  Whats the property value? 

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Tami DuBose
Lender from Prairieville, LA

replied over 1 year ago

@Vincent Wright , @Tim Johnson is correct. We need much more insight to help guide you. Throwing general insight out: call all the local banks. 

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