Costs of hard money with conventional refinance vs. conventional with conventional refinance

6 Replies

I'm looking for property number three for rehab and hold. My original plan was to use a conventional mortgage for purchase, do improvments, then refinance when I can. I've recently started thinking about going the private/hard money route. The main appeal is that it would allow me to make cash offers, which could give me a big leg up in the current environment. Additionally, it should be easier to get the bank refinance since I wouldn't have a mortgage on it.

One thing that concerns me is the cost of hard money vs the costs of a conventional mortgage. Any other thoughts here? Is hard money going to be more expensive? I figure about 5 months of paying interest on the hard money.

Is there any reason to stick with conventional if I can afford it, other than losing out on the cash offer ability?

First things first, hard money loans still qualify as financing when submitting your offer. Unfortunately, a loan with hard money financing is NOT a cash offer. Cash is money sitting in your own bank account or some bank account you control. 

Hard money will always be more expensive than conventional financing for a few reasons. Hard money loans are not income or credit based, they can cover both purchase AND rehab costs, they can be used to finance properties that don't qualify for conventional financing i.e. distressed properties, they are short term and often don't have large capital investment requirements for the borrower. 

I should clarify. When I say 'more expensive', I'm referring to points and fees. Obviously the interest rates are higher. 

Is this true that hard money won't let you qualify as a 'cash offer'? My assumption would be that hard monely lenders would have you pre approved and should easily be able to get you the money within the contingency period. 

That should definitely be the case for private money at least.

you also need to be sure your conventional lender does require a wait period before they will refinance at the new value.  My usual conventional lender will only refi and the purchase price (not the price plus improvements) for one year after hard money.

@Derek Daun

Hey Derek, no one can give you an exact answer, because the answer would require knowing what company and what hard money lender you are considering.

Companies in the business of lending or individuals in the business of lending will create an offering package that can be desirable in one regard, while being less than desirable in other regards. For example, you could find two hard money lenders. One offers an application fee that is less than desirable along with 2 points to be paid upfront. The other hard money lender could supply 100% of the transaction, while asking for zero fees upfront, but the loan has to be paid back in less than two years.

Similar scenarios could be given for conventional lenders. You should definitely seek out experienced mortgage brokers, and have them look for "no seasoning" loan packages if you are thinking about refinancing. That way you do not have to wait before refinancing.

So, yo recap, only you will know the exact answer based on your choices concerning the purchase funds. Hard money can be considered in a cash offering to the sellers, but as far as you are concern, it will be a loan (financing).....both you guys are correct hahaha!

Anthony Davis

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I've had the atty say he wouldn't do the private lender paperwork on a bank purchase that was supposed to be cash.  Not a big deal for me, I just did it myself and my lender is an atty and we know each other well, but apparently the bank had an issue with it.

My brokered hard money would not be considered cash.  Its hard money and easy to qualify for, etc.  but it is definitely a national lender and comes with some of those headaches.

I personally make my offers all cash with my private lender, but we do the paperwork ourselves after the loan closes.  I've got real solid relationships (and a stellar history) with my guys, though.

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