Hard Money to Conventional Loan

25 Replies

Has anyone ever purchased a property via a hard money loan and then refinanced directly after into a standard 30 year mortgage?

I know I heard something like a person cannot refinance until 4 months after a purchase but is this for every lender/location?

It all depends on the lender and their refi criteria ..some are 6 months some 12 months some are 30 days. but the answer is yes you can refi based on appraised value immediately after you rehab a property into a 30 year loan 

@Tarik Turner I was thinking about the refinance into a standard mortgage before the rehab so I can get a regular cheaper interest rate on a foreclosed home that I originally bought for cash. Then rehab, rent, refinance or flip months after

If the property isn't move in ready that would be an issue.

You can get a loan based on the as is value if it is not move in ready but it would be a bridge loan and not a long term mortgage 

You would not be able to get the conventional loan if the property is distressed to a certain extent. That is implied in the "cash only" or "foreclosure" or "distressed" descriptions you used. if the conventional lender would not lend at the initial purchase, and you have done no work to the property, then they would still not be able to finance your refi out of the hard money. the conventional lender cannot lend on a property that is in that state of disrepair. The key here would be to use the hard money or your own cash, to fix up the property so that it is now safe and habitable, and could thus qualify for a conventional loan. if you were to try refinancing out of the hard money into a conventional loan with a Fannie Mae Direct lender, then the only delay or seasoning you would be up against would be the time it takes to get the rehab completed. Fannie Direct lenders have no seasoning requirements on their rate and term refinancing and so they could refi immediately after you buy with the hard money, and use that increased value. they will get a new ARV appraisal but they are wanting to see all of the repairs actually completed to be able to use that value. contrast that with hard money lenders who can predict the future, so to say, of the ARV through understanding your scope of work/repairs.

Don't focus on the "cheaper" interest rate from a conventional lender at the purchase stage. Focus on getting the property safe, habitable and rent ready, and focus on doing that quickly through the hard money loan. Then you can refinance into the long term loan. There is the potential, depending on your deal and your hard money lender, to borrower 100% of the purchase price and the repairs and even the closing costs, reducing your out of pocket cash to near zero, and when you refi with that fannie direct lender, they can potentially keep that very little to no money down scenario going by refinancing the entire hard money loan. This is basically the BRRRR method.

You would have to balance all of this with your personal situation and goals. if you don't have a lot of cash, or if you are very debt adverse and want lower loan amounts, etc. But finding a distressed property, where you can get a good purchase price, increase the value through the repairs, and then refinance into a long term conventional loan and have the property cashflow well, can be an amazing opportunity to grow your investment portfolio!

@Dan Colantonio You can use our private funding for portions of the buy and improvements (we lend in 30 states) The improvements will increase the value and will make it possible for you to get it rented. Then you can refinance, even if only owned a short period of time, into a long-term loan at the new improved value (the After Repaired Value), using Visio Lending. Our rate will be high (12-13%), but short-term and provides the majority of what is needed for purchase & improvements. Visio Lending will be higher than a bank, but lower than our short-term money (probably 7-8%) and will put you in a 30 year amortization loan. Just an option.

Originally posted by @Rob Beeman :

@Dan Colantonio You can use our private funding for portions of the buy and improvements (we lend in 30 states) The improvements will increase the value and will make it possible for you to get it rented. Then you can refinance, even if only owned a short period of time, into a long-term loan at the new improved value (the After Repaired Value), using Visio Lending. Our rate will be high (12-13%), but short-term and provides the majority of what is needed for purchase & improvements. Visio Lending will be higher than a bank, but lower than our short-term money (probably 7-8%) and will put you in a 30 year amortization loan. Just an option.

 Do you loan in NC?

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@Dan Colantonio I find there are very few "hard No's" out there. Someone will do it even if the first 10 people or banks you ask tell you no one will. I've done cash out Refies on appraised value on day 1, I did it into a commercial loan with a 20 amortization and a 5 year balloon and will refinance into a 30 yr later because I thought that was my only option at the time and I wanted an 80% LTV but I have since been approached by several companies that would do a 30 year fixed refi 75% LTV on my LLC on day one so it's possible. Banks telling me "no one will do that" is my pet peeve. Nooooo you won't do that, doesn't mean no one will, you are either lying to me or ignorant. Either way I don't usually go back to those banks. Good luck and keep looking till you find what you want

Seasoning requirements for refi on a property vary, and in some cases with Hard Money Lenders do not exist (we do not have any). The original purchase price, rehab cost, current appraised value, borrower's credit, and Property Debt to Income ratio can determine your LTV and interest rates.

@Dan Colantonio very common to use a HML to purchase the property very quickly, its like having cash and refi later to a traditional lender. HML will be able to provide rehab funds, traditional lenders will not.

@Dan Colantonio

Hello Dan,

Most HML do not come with a prepay penalty so you will be good on that end. As for the new lender typically they will be ok with doing a rate and term refinance using the original purchase price as the current value in home. Some lenders offer delayed purchase financing which allows you to refinance a property within six months after purchase, as if it were a new purchase which means you would get new purchase rates. Feel free to dm for more info. If you are adding value to property and would like to use the new value say to do a cash out, then typically lenders want you to wait six months.

@Dan Colantonio  We have helped people finance with hard money, and then actually give them a "LTV/Cash Out Draw" at the end of our loan (if they want to leverage the equity that they just built by rehabbing the property). This allows them to maximize their cash out of their equity they just built, while allowing them to do a rate/term refinance with their takeout loan.

This helps with two things:
- Rate/term refinances typically don't have any seasoning requirements like a cash out refinance would, so you can get it completed quicker
- Rate/term refinances will have lower rates than a cash out.

So even though you do have some fees, depending on how much you are saving on the rate/term rate, it could make a lot of sense and save you a lot of money over the long term. Plus you are able to get the property done quicker as mentioned above. 

We only lend in Arizona right now, but perhaps you could find a lender who is willing to do a similar set up. 

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