Refinacing Hard Money Loan

16 Replies

I have a question about a scenario i am unsure about.

Is it possible for me to get a hard money loan to purchase a house that need rehabbing, than after i am done fixing it up i decide i want to live in it.

Can i refinance that hard money loan into a traditional 30 year loan ?

Yes, its possible. You'll need to qualify, the new value will need to be verified, and you'll have to substantiate the reparis. You may have to wait six months or a year, but with some searching and a good mortgage broker, you should be able to do it sooner. It will be easier if you JUST pay off the hard money loan and do not take any cash.

Seasoning is immediate for a rate-and-term refi with a conforming lender. That is, you can get no cash back unless/until you have owned the home for 6-12 months.

Seasoning is 90 days for an FHA loan.

Originally posted by Jon Holdman:
It will be easier if you JUST pay off the hard money loan and do not take any cash.

But what if you dont have enough money to pay off the hard money loan because the expenses of renovating the place. What do you do then ?

Oh by the way thanks for the response guys.

Can you give some real numbers? If you do a rate and term refi (no cash out), you should be able to go up to at least 80% of the new value, maybe 90%.


The practical reality is that lenders will allow you to pay off the hard money loan but not get your rehab money out until you've owned the property for 6-12 months (varies by lender).

If you try to recoup the rehab money, you're "juicing" the property. In the current environment (generally declining home values), lenders want the homeowner to have some skin in the game. If a new loan pays off both the hard money loan and the cost of rehab, you, the homeowner, have no skin in the game unless/until you have made payments for 6-12 months.

If the hard money lender has lent you both the purchase price and the money it took to fix the property, you can immediately do a rate-and-term refinance. However! ALL lenders, without exception, will do a 24-month "chain of title" check to determine that Investor A bought it for X and sold it to Homebuyer B for Y and may require that you justify the increased value through receipts for repairs, materials, etc.

Here's the link to Fannie Mae's guidelines.

http://tinyurl.com/5avyk4

Here's the pertinent section:

Definition of Purchase and Refinance Transactions

In the Selling Guide Part VII, Mortgage Eligibility, Chapter 1, Conventional Mortgages, Section 103 Eligible Transaction Types, the requirements for determining whether a transaction qualifies as a purchase money transaction, limited cash-out refinance transaction or a cash-out refinance transaction are stated.

We are adding the following new standard to the requirements for purchase money transactions set forth in Section 103.01 Purchase Money Transactions:

• The borrower(s) may not receive any cash back through a purchase money transaction, other than an amount representing (a) a reimbursement for the borrower’s overpayment of fees; (b) costs paid by the borrower in advance (e.g. earnest money deposit, appraisal, and credit report fees); or (c) a legitimate pro-rated real estate tax credit in locales where real estate taxes are paid in arrears. If the borrower receives cash back for a permissible purpose listed in the prior sentence, the lender must confirm that the minimum borrower contribution requirement associated with the selected mortgage product, if any, has been met.

In addition, the following clarification is being made for both limited cash-out refinance transactions in Part VII, Section 103.02 Limited Cash-Out Refinance Transactions and cash-out refinance transactions in Section 103.03 Cash-Out Refinance Transactions:

• For a refinance transaction (either limited cash-out or cash-out) to be eligible for sale to Fannie Mae, there must be a continuity of obligation if there is currently an outstanding lien that will be satisfied through the refinance transaction, i.e. there must be at least one borrower obligated on the new loan who was also a borrower obligated on the existing loan that is being refinanced. If there is no continuity of obligation, i.e. if no borrower on the outstanding loan that will be satisfied through the new loan is also a borrower on the new loan; the transaction must be treated as a purchase. If there is not currently an outstanding lien on the subject property, a loan to the property owner secured by the property will be considered a cash-out refinance in accordance with Section 103.03.

Caitlyn & Loc,
If the hard money included both the purchase and rehab costs, then the refi should be able to pay off the entire hard money loan. There may well be a six month seasoning period even in this situation. The broker I work with advised of that just yesterday, and says he's now writing the hard money loans with a nine month balloon instead of six.

I don't quite understand this statement from Loc:

But what if you dont have enough money to pay off the hard money loan because the expenses of renovating the place. What do you do then ?

If you mean some or all of the rehab expenses were paid from some source other than the hard money loan, and you want to take that money out of the refi, you're doing a cash out refi, and you'll be subject to the more stringent terms.

I'd agree with Caitlyn that the lender is going to want to see justification for the increased value.



If you mean some or all of the rehab expenses were paid from some source other than the hard money loan, and you want to take that money out of the refi, you're doing a cash out refi, and you'll be subject to the more stringent terms.


okay yeah that answered the question too.

the biggest issue you'll have is that most hard money lenders wont do loans for owner occupancy.

since the loans are high rate/cost their consider business/commercial purposes therefore not available on primary homes.

What you'd want to use is the fannie rehab program that allows automatically converts your rehab loan into long term financing. It would be much cheaper like this.

As far as investors refinancing hard money loans, this can be done as a rate/term refinance (just the 1st mortgage lien recorded at closing) anytime or cash out after 6 months. From the way that I read the guidelines for Fannie, investors that use their own cash for purchasing and rehab cant get those funds back for 12 months. But Freddie doesnt have this, there's is 6 months for properties owed free/clear.

actually some of the guidelines posted earlier are a little outdated from 12/07. Fannie came out with a new announcement about this 9/08. Will attach on another reply.

Fannie Mae announcement 08-22
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0822.pdf

FAQs concerning the announcement
https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/pdf/0822faqs.pdf

This post has been removed.

Originally posted by @Wilfredo Pacheco :

Does anyone have any suggestions on which lender to use for a refinance to finish a rehab?

 That question just opened up a lot more; owner occupied or non?  How much of the property is torn apart?  Is it livable?  How many units?

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