Refinancing a hard money loan
Glendale Heights, IL · Member since 2016 · 12 posts · 1 vote
Hi, I'm interested in taking out a hard money loan to fix up my house. I know that they have usually have interest rates around 15%. The reason I'm looking into this is because I won't qualify for a second mortgage
My house needs repairs and I also have a credit score around 600
I was going to take out a hard money loan for 65K, pay the interest for the next 8-10 months and once my credit score is in the mid to high 600's and my house is fixed up, would a bank refinance my hard money loan? Pay off that 65K and I would just make payments to them instead?
My house is paid off and fixed up it's worth around 100-110k
Congrats on your decision to buy a property!
I have used Hard Money to purchase and renovate a number of my rental properties (and some flips) and I work with investors who use this medium to reach their goals. I'll give you my professional and personal opinion so you can make an educated decision.
The one mistake I have seen people make repeatedly is obtaining a hard money loan without the "get out" plan. Hard money interest (as you just mentioned) is much higher than traditional. The best case scenario is to have a refinancing bank standing at the ready BEFORE you get that hard money loan. A lot of things can happen between now and 8-10 months from now. You really don't want to lose the property (especially if you renovated it) to the bank because of lack of payment). Most hard money lenders I have worked with have a 6 month loan with the option to extend 1-2 times for 1-2 months. Each extension required a sizable "fee" of $500+ (I would look into the terms carefully with hard money lender before proceeding).
My advice: Shop around with refinancing banks and tell them your situation. Find one that will refinance you with credit as is. If they can't, find out the score needed (which may be 620 for example). Only obtain that hard money loan once you have a bank that will work with you on the back end. You may also want to discuss with the refinancing bank your renovation plans and expected home value BEFORE you start to ensure you don't 1) over develop, 2) values are in line with their value numbers. Have your agent run comps in the area with features you expect to include once your renovations are complete. Some banks would even allow you to use their appraiser to value the property and the "after" renovation estimate and tentatively sign off on approving your refinance (contingent on your finances, credit score and renovation plans). Using their appraiser is important because for THAT bank, it is the only appraiser's opinion that matters.
Now once you have that in place if you want to wait to refinance for 8-10 months, fine. Me? I have done my hard money loan and refinanced the very next month after renovations are done to avoid several months of high interest payments.
Good luck!
Maria
Hey Steve. You can definitely refinance out of a hard money loan after the repairs are complete and your scores have improved assuming you meet all other qualifications. I'm not sure about Illinois but here in CA hard money rates have come down quite a bit so I would recommend that you shop around to make sure you get the best deal. We also have some Non Prime lenders that are similar to Hard Money lenders but they take some of your personal/financial qualifications into consideration and for that they offer better rates and less points. Hope this helps. Good luck!
Congrats on your decision to buy a property!
I have used Hard Money to purchase and renovate a number of my rental properties (and some flips) and I work with investors who use this medium to reach their goals. I'll give you my professional and personal opinion so you can make an educated decision.
The one mistake I have seen people make repeatedly is obtaining a hard money loan without the "get out" plan. Hard money interest (as you just mentioned) is much higher than traditional. The best case scenario is to have a refinancing bank standing at the ready BEFORE you get that hard money loan. A lot of things can happen between now and 8-10 months from now. You really don't want to lose the property (especially if you renovated it) to the bank because of lack of payment). Most hard money lenders I have worked with have a 6 month loan with the option to extend 1-2 times for 1-2 months. Each extension required a sizable "fee" of $500+ (I would look into the terms carefully with hard money lender before proceeding).
My advice: Shop around with refinancing banks and tell them your situation. Find one that will refinance you with credit as is. If they can't, find out the score needed (which may be 620 for example). Only obtain that hard money loan once you have a bank that will work with you on the back end. You may also want to discuss with the refinancing bank your renovation plans and expected home value BEFORE you start to ensure you don't 1) over develop, 2) values are in line with their value numbers. Have your agent run comps in the area with features you expect to include once your renovations are complete. Some banks would even allow you to use their appraiser to value the property and the "after" renovation estimate and tentatively sign off on approving your refinance (contingent on your finances, credit score and renovation plans). Using their appraiser is important because for THAT bank, it is the only appraiser's opinion that matters.
Now once you have that in place if you want to wait to refinance for 8-10 months, fine. Me? I have done my hard money loan and refinanced the very next month after renovations are done to avoid several months of high interest payments.
Good luck!
Maria
Congrats on your decision to buy a property!
I have used Hard Money to purchase and renovate a number of my rental properties (and some flips) and I work with investors who use this medium to reach their goals. I'll give you my professional and personal opinion so you can make an educated decision.
The one mistake I have seen people make repeatedly is obtaining a hard money loan without the "get out" plan. Hard money interest (as you just mentioned) is much higher than traditional. The best case scenario is to have a refinancing bank standing at the ready BEFORE you get that hard money loan. A lot of things can happen between now and 8-10 months from now. You really don't want to lose the property (especially if you renovated it) to the bank because of lack of payment). Most hard money lenders I have worked with have a 6 month loan with the option to extend 1-2 times for 1-2 months. Each extension required a sizable "fee" of $500+ (I would look into the terms carefully with hard money lender before proceeding).
My advice: Shop around with refinancing banks and tell them your situation. Find one that will refinance you with credit as is. If they can't, find out the score needed (which may be 620 for example). Only obtain that hard money loan once you have a bank that will work with you on the back end. You may also want to discuss with the refinancing bank your renovation plans and expected home value BEFORE you start to ensure you don't 1) over develop, 2) values are in line with their value numbers. Have your agent run comps in the area with features you expect to include once your renovations are complete. Some banks would even allow you to use their appraiser to value the property and the "after" renovation estimate and tentatively sign off on approving your refinance (contingent on your finances, credit score and renovation plans). Using their appraiser is important because for THAT bank, it is the only appraiser's opinion that matters.
Now once you have that in place if you want to wait to refinance for 8-10 months, fine. Me? I have done my hard money loan and refinanced the very next month after renovations are done to avoid several months of high interest payments.
Good luck!
Maria
Hey Maria, thanks for your post, I just wanted to clarify something. I own the house already and was going to take out a hard money loan so I can repair it. I bought the house in 2010 for 55K, right now according to Chase Bank and other sites it's worth 100-110k but I assume that's in fixed and great condition.
My get out plan was that after I fix up the house, I was going to sell it and pocket the difference
But that's my last resort, I'd rather a bank refinance and pay off that loan and I pay them instead for the lower interest rate
That was my plan at least, I just wanted to make sure I had the info and I'm def going to look into different banks before hand. Thanks again for the info
Thanks for the clarification. I would still recommend the steps I suggested as they all apply. I was stuck in a hard money loan for six months because I finished my renovation too late (end of September when all the families stopped buying due to the school season). It was tough making those payments AND deal with other rentals. With my situation, the house sat empty because I didn't want to put a tenant in and risk them damaging the house.
Anyway, looks like you are on the right track.