Hard money lending.

27 Replies

Hello everyone. I have a quick question for everyone.If I get a hard loan to buy a house that is only accepting cash offers can I refinance to a conventional loan after having bought the house?

If the seller is only accepting cash offers then a hard money loan probably won't be acceptable. Hard money is still a loan, not cash.

To answer your questions, yes, you can refinance. If you want to do it quickly (less than a year) you will use the price you paid (or appraisal, if lower) as the "value" for the refi loan. If you want to use a new appraisal you will need to wait at least six months, a year for most lenders.

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Yes you can refinance immediately after repairs (if any) are completed to bring it to ARV. You can refinance up to 75% ARV so if you bought the house cheap enough you can refinance with little to no out of pocket costs.

The downside to this is paying closing costs twice. As long as you factor that into your costs when you buy it's a good strategy to use though.

Be sure to find a good mortgage broker that understands this strategy before you buy. Your hard money lender should have referrals.

Also, generally speaking using hard money can be considered cash but technically it's an asset based loan. Most sellers won't have an issue with it, especially with a pre-qual letter.

I don't agree with Jon as you can bring a hard money loan to a cash deal, as long as it's not a contingency for the sale. I just did one like that today. The seller only cares that he's getting cash at closing, and how you get it there doesn't really matter.

Yes, you can refi after you purchase, but the amount will vary depending on the ARV or appraised value. If you need to buy out the hard money loan, ensure the house will have a high enough value when the time comes to do so.

Good luck!

Oops. Note to Admin. Joshua Dorkin Using the iPhone app when clicking reply again it looked like I was editing my first comment but it actually posted the entire message again.

Yes!! Thank you all of you for your feedback @Chris Bounds @Marc Ramsay @Jon Holdman . I am putting a deal together for my first rental and found out the owner was only taking a cash offer I got a little creative. I just wanted to confirm it was doable.

Sorry, but I respectfully disagree the seller is only interested in the cash they get after closing. When you have a lender involved, there is ALWAYS a chance the deal will blow up because of the lender. Now, if you write your offer as "cash", with no financing contingency, offer a nice EM deposit (10% would be typical for a cash offer) and include a clause in the contract that you may get financing if you wish, the offer may fly. But you are then taking the risk on yourself that the lender flakes out and can't fund the deal.

@Chris Bounds have you actually done this recently:

Yes you can refinance immediately after repairs (if any) are completed to bring it to ARV. You can refinance up to 75% ARV so if you bought the house cheap enough you can refinance with little to no out of pocket costs.

Its been a while since I've tried, but the seasoning period at least used to be a FDIC requirement. It would be nice if that's loosening up.

Now time to find a hard money lender.

Jon has a point with regards to hard money lenders. It is imperitive that you have solid approval from the lender before you remove subjects otherwise you could end up losing your escrow money. Get the approval in writing as well as timelines and amounts to make sure there are no hiccups, and you should be able to treat it like cash.

@Jon Holdman seasoning is needed for cash out but not for a clean refi. Technically if no repairs are needed you can file the refi a few days after the initial closing. [REMOVED] here in Houston has a great "Temp-to-perm" program for investors that follows that strategy.

@Abel Vazquez I personally consider HM cash. It's just not my cash. I'd say 95% of "cash buyers" are really using HM or other private funds. I know what my HM company likes though so I'm comfortable knowing my funding is secure. Having an inspection clause just in case it doesn't work out with the HM lender is a good idea. Worst case, try and wholesale it to another investor!

@Chris Bounds (a little off subject) I noticed that you mentioned Jet Lending in on of your answers, I ran across them on my search for a hard money lender but was unable to find anyone else that has dealt with them. Have you worked with them, gotten any loans, or know anyone that has. I would love more information on how that went. Thanks in advance

This is a great post. Kinda asked this question yesterday. I missed this post. @Abel Vazquez good luck on your deal, I'm hoping to do something similar soon.

I write all my offers as cash offers, although technically they are funded by private lenders. There is a potential they cant fund, but we have done quite a few deals, and they have a track record of the always funding, so I feel pretty safe writing them as such, if one would flake out on me, I would have other resources to close.

Refinance lag time: We have a couple local banks, portfolio lenders, that will refinance immedeatly after purchase at 80% of appraised value.

Its possible to refi pretty quickly if you find the right bank, maybe they are only located in ne ohio, but I doubt it.

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All three banks I am familiar with that do these types of loans, are based in Ohio, and wont loan out of state.

Two will only lend in the counties they have branches in, and the immediate surrounding counties. One will go anywhere in the state.

On one deal I refinanced before the first payment was due, but made the payment anyway in case it didn't close. On another I refinanced before the 2nd payment was due. In both cases I got a check back from the HM lender after funding. At least in TX there is no seasoning rules for refi I know of, maybe a resale if it was specifically worded in the contract. FNMA and some banks will have the time limit rules disclosed.

@Adam K. Do you know what the qualifying requirements are for refinance? We won't qualify under Fannie Mae guidelines. Thanks, Jerri

All of my refinances are with mortgage companies. The big banks take too long and have too many requirements, at least for rental purchases so I never wen tried refi's. I sat down with BOA last year to find out about getting my 5th and they said I can't have more than 4 mortgages. We talked a little bit and then he learned about the magical world of REI finance.

The requirements vary but last I was told you needed 3 months reserve cash for properties 1-4 each ,PITIA and 6 months reserve for each props 5-10 with 720 cs.

So if that's not there you could get stuck in the HM loan.

Oops. Note to Admin. Joshua Dorkin Using the iPhone app when clicking reply again it looked like I was editing my first comment but it actually posted the entire message again.

@Chris Bounds what's happening here is that the system retains whatever you've typed in the reply box. That's meant to save what you've written so far in the case you accidentally close your browser. your machine crashes, or the site has a hiccup. When you come back to a thread and open the reply box, whatever you typed is still there. If you're really typing a new reply, erase the old text first. Sorry, that's a bit confusing, but it is intentional to avoid people losing their work when something goes wrong.

Good to know - thanks!

@LATAYA THOMAS Yes, I have used [REMOVED] several times before. They may not be the cheapest place in town, but they are a very experienced hard money lending group with a lot of resources to help you with your deal whether it's rehabbing, wholesaling, or flipping as a rental. They have monthly free investor meetings that I recommend as well. Ask for Erick when you call in.

For the record, I have no ties to [REMOVED] other than being a customer.

@Chris Bounds thanks for your reply it's always good to know someone close to home has dealt with a lender you are considering. Working on a deal currently hoping to use them in the future, but getting that confirmation of usage from you makes me feel a lot more comfortable about choosing them and gives validation to their creditability as a lender. Also thanks for letting me know that they have free investor meetings I have been looking for those in the Houston area.

Folks, recommendations for specific lenders can only be made in the Marketplace forum. Discussion of lending practices is OK in this thread, but naming specific lenders is not. That has to go into the Marketplace.

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