Using Hard money upfront then converting to DSCR loan

[Chris Thomas]

I’m trying to understand how to go about purchasing properties that need rehabs with hard money then converting to a dscr loan after the rehab and new appraisal have been completed. If anyone could layout some basic steps on how to do this it would be much appreciated thanks!

[Jayson Cain]

@Chris Thomas - I've been both a lender and an investor and here are the basic steps you can follow:

1. Find a Hard Money Lender: Start by identifying reputable hard money lenders who specialize in financing rehab projects. They will assess the property's value based on its after-repair value (ARV) and lend you a percentage of that value to fund the purchase and renovation.
2. Secure the Hard Money Loan: Once you've found a suitable property, submit your application to the hard money lender and provide the necessary documentation, such as the property details, rehab plans, and your financial information. If approved, you'll receive the funds to purchase the property and begin the renovations.
3. Complete the Rehab: Use the hard money loan to finance the property purchase and carry out the necessary renovations. Ensure that you stick to your budget and timeline to maximize your returns.
4. Get a New Appraisal: Once the rehab is complete, hire an appraiser to assess the property's value based on its improved condition. This appraisal will be crucial when transitioning from the hard money loan to the DSCR loan.
5. Apply for a DSCR Loan: Contact lenders who offer DSCR loans and provide them with the updated property appraisal, your financial information, and any other required documentation. They will assess the property's income-generating potential, such as rental income or projected cash flow, to determine your eligibility for the DSCR loan.
6. Convert to DSCR Loan: If approved, the DSCR loan will replace the hard money loan. This type of loan considers the property's income potential and cash flow to determine the loan amount and interest rate. It allows you to secure long-term financing with potentially better terms and lower interest rates.

Remember, each lender may have different requirements and processes, so it's essential to research and compare multiple lenders to find the best fit for your needs.

Reach out if you have any additional questions from the steps above. :)

[Chris Thomas]

Quote from @Jayson Cain:

@Chris Thomas - I've been both a lender and an investor and here are the basic steps you can follow:

1. Find a Hard Money Lender: Start by identifying reputable hard money lenders who specialize in financing rehab projects. They will assess the property's value based on its after-repair value (ARV) and lend you a percentage of that value to fund the purchase and renovation.
2. Secure the Hard Money Loan: Once you've found a suitable property, submit your application to the hard money lender and provide the necessary documentation, such as the property details, rehab plans, and your financial information. If approved, you'll receive the funds to purchase the property and begin the renovations.
3. Complete the Rehab: Use the hard money loan to finance the property purchase and carry out the necessary renovations. Ensure that you stick to your budget and timeline to maximize your returns.
4. Get a New Appraisal: Once the rehab is complete, hire an appraiser to assess the property's value based on its improved condition. This appraisal will be crucial when transitioning from the hard money loan to the DSCR loan.
5. Apply for a DSCR Loan: Contact lenders who offer DSCR loans and provide them with the updated property appraisal, your financial information, and any other required documentation. They will assess the property's income-generating potential, such as rental income or projected cash flow, to determine your eligibility for the DSCR loan.
6. Convert to DSCR Loan: If approved, the DSCR loan will replace the hard money loan. This type of loan considers the property's income potential and cash flow to determine the loan amount and interest rate. It allows you to secure long-term financing with potentially better terms and lower interest rates.

Remember, each lender may have different requirements and processes, so it's essential to research and compare multiple lenders to find the best fit for your needs.

Reach out if you have any additional questions from the steps above. :)

Thank you for the information! Is there anyway to include the rehab costs into the loan? Or will that have to be cash on hand. Also how much is the down payment with hard money?

[David Bilandzija]

Hey @Chris Thomas the private lenders I work with can offer up to 90% loan-to-cost.  Essentially 10% down for the acquisition and 100% of the rehab, assuming it doesn't exceed 75% of the after repair value.  This kind of leverage is reserved for investors with experience.  Expect a larger down payment as a first timer (closer to 20% down); rehab budget is still included.  

Another important factor to consider is the seasoning on your appraised value after rehab is completed. Seasoning is basically the time you have owned the property. DSCR lenders vary on their value seasoning requirements. The earliest seasoning requirement I'm aware of that combines favorable terms is 3 months. Some DSCR lenders go farther out at 6 months.

[Eliott Elias]

Once you complete the rehab with your hard money, you will cash out refinance via DSCR. Your lenders should be able to navigate through this.

[Robin Simon]

Quote from @Jayson Cain:

@Chris Thomas - I've been both a lender and an investor and here are the basic steps you can follow:

1. Find a Hard Money Lender: Start by identifying reputable hard money lenders who specialize in financing rehab projects. They will assess the property's value based on its after-repair value (ARV) and lend you a percentage of that value to fund the purchase and renovation.
2. Secure the Hard Money Loan: Once you've found a suitable property, submit your application to the hard money lender and provide the necessary documentation, such as the property details, rehab plans, and your financial information. If approved, you'll receive the funds to purchase the property and begin the renovations.
3. Complete the Rehab: Use the hard money loan to finance the property purchase and carry out the necessary renovations. Ensure that you stick to your budget and timeline to maximize your returns.
4. Get a New Appraisal: Once the rehab is complete, hire an appraiser to assess the property's value based on its improved condition. This appraisal will be crucial when transitioning from the hard money loan to the DSCR loan.
5. Apply for a DSCR Loan: Contact lenders who offer DSCR loans and provide them with the updated property appraisal, your financial information, and any other required documentation. They will assess the property's income-generating potential, such as rental income or projected cash flow, to determine your eligibility for the DSCR loan.
6. Convert to DSCR Loan: If approved, the DSCR loan will replace the hard money loan. This type of loan considers the property's income potential and cash flow to determine the loan amount and interest rate. It allows you to secure long-term financing with potentially better terms and lower interest rates.

Remember, each lender may have different requirements and processes, so it's essential to research and compare multiple lenders to find the best fit for your needs.

Reach out if you have any additional questions from the steps above. :)

This is generally solid except be careful on #4. DSCR Lenders will not let you order your own appraisal and "bring it to them" - Any DSCR Lender (thats not committing fraudulent practices) will require an appraisal ordered through an AMC or their processes to ensure independence and no funny business

[Jimmy Lieu]

Quote from @Chris Thomas:

I’m trying to understand how to go about purchasing properties that need rehabs with hard money then converting to a dscr loan after the rehab and new appraisal have been completed. If anyone could layout some basic steps on how to do this it would be much appreciated thanks!

Hi Chris, I'm a local investor and agent here in Columbus Ohio and I've done all types of financing (hard money, private money, DSCR, refis, etc.) so I have a ton of experience with this. First, for your hard money lender, you will want to have a portfolio of past flips or projects you've worked on to show your experience and you know what you're doing (many HMLs don't lend or will give you a bad LTV if you don't have a lot of experience). Next, you will want to make sure your renovation and ARV numbers are very accurate and spot on, you'll need to send scope of work to your HML. You'll be getting your renovation budget out using draw requests from the HML. When you finish your renovation, you'll refinance out with the DSCR lender after you've rented out your property. I have an absolute rockstar hard money lender and a DSCR lender with zero seasoning period, would love to introduce. As a local investor and agent here, let me know if you have any questions or want to connect.

[Remington Lyman]

Quote from @Chris Thomas:

I’m trying to understand how to go about purchasing properties that need rehabs with hard money then converting to a dscr loan after the rehab and new appraisal have been completed. If anyone could layout some basic steps on how to do this it would be much appreciated thanks!

 I can help you with that

@Mike Dissett is a solid lender and active on this forum

[Mike Dissett]

Quote from @Remington Lyman:

Quote from @Chris Thomas:

I’m trying to understand how to go about purchasing properties that need rehabs with hard money then converting to a dscr loan after the rehab and new appraisal have been completed. If anyone could layout some basic steps on how to do this it would be much appreciated thanks!

 I can help you with that

@Mike Dissett is a solid lender and active on this forum

 Thanks Remington!  Chris- I have been a loan officer and lived in Columbus for 20 years.  If you have any questions, I am always available to help.

[Erik Estrada]

Quote from @Chris Thomas:

I’m trying to understand how to go about purchasing properties that need rehabs with hard money then converting to a dscr loan after the rehab and new appraisal have been completed. If anyone could layout some basic steps on how to do this it would be much appreciated thanks!

 Hey Chris, 

The Rehab is a holdback. So you would need to complete a portion of the work and then draw from the fund. Very few hard money lenders will give you the rehab funds all up front. 

You can do 90% LTV/100% Rehab if you have the FICO and experience, with a handful of lenders. I am seeing 85/100 now a days.

Also when you do a cash out refinance on the new appraised, you must have title seasoning for 3-6 months (depending on experience). Otherwise you will be limited to the purchase price and rehab cost. 

Make sure you work with a broker that can help you get from point a to b.