Hard money to Conventional

4 Replies

I'm asking this question at a very generic concept, hopefully someone knows the answer and I'll use very simple numbers.

Lets say I bought a home for 70k via hard money, with an ARV of 100k. The hard money lends me that 70k. I spend 10k of my own money to rehab the property.

After that rehab, I want to switch to a conventional loan. My questions are:

1. Do I have to wait an x amount of time before I can switch to conventional?

2. Do I have to put a 20% down payment to get a conventional loan, while stuck in that hard money loan or will the bank lend me 80% of the ARV of the home?

I appreciate you for reading this!

Bank will lend off of ARV as long as you can show a significant improvement to the property during rehab. You would only be limited by the hard money contract timeline. Possibly a prepay penalty to hard money?

Thanks for the clarification, Blake!

This means I'd want to take lots of before and after pictures.

If the ARV is 100k are you saying the bank would lend the full 100k- without requiring a down payment?

@Erin Butler

My bank will lend or refi at 85%. I definitely recommend getting a good local bank relationship. 

I did this one year, I bought 1 on a line of credit


Bought next with the cash and credit


In 9 months I turned a line of credit into 4 houses, 3 mortgages, and a full line of credit. 

I do caution that if you ever brrrrrrrrrrrrrrrrr this repetitively, you may be in a pinch if you ever sell any, but the last too quick. 

All of my equity ended in the last house and each of the other had 15% equity because of stripping it to the next. There has to be some debt pay down at some point if you intend to sell individually.  If holding, it is a very powerful system.

I believe part of the restrictions might also be dependent on if you are doing a rate / term refinance, or if it's a cash out refinance. I am not a conventional loan originator, but here is my experience based on clients originating out of our hard money loan and into conventional loans:

- Cash out refinances will usually have a 6 month seasoning period. Most lenders will only allow you to get cash out up to 75-80% of the value. 

- If it's rate / term refinance, you are just paying off whatever your existing loan balance is (in this situation, it would be the $70k). So you don't have to wait to do the refinance. However, you can't get money out of the equity that you have built using this type of refinance. 

And yes as @Blake Garcia said, you need to know whether your current hard money loan has a prepayment penalty, or minimum interest. If you pay it off before that time, you could be double paying interest.