Refinancing Hard Money to Commercial

[Lyric Todkill]

Greetings fellow investors,

My partner and I are working on our first duplex deal here in Houston. It’s already gutted and we would have about four months of rehab ahead of us. We have pre-approval for a hard money loan, but have concerns about how the refi will go. Here are some details.

ARV 330K

HML 260 @ 9.9% for 6 months

Refi as a commercial loan @ market (verbally around 5%)

My concern is the market rate. I once accidentally bought a lobster at dinner for $180 at market price, so I’m guy shy about getting into bed with a lender who can’t offer me a hard number. Is this normal for hard money lenders when converting to commercial loans and what are the main differences and pitfalls of a commercial loan vs a conventional loan? How difficult is it to take a hard money loan from one lender, but go elsewhere for the refinance? I’m also unclear as to why we weren’t able to secure a conventional loan in the first place.

Any insights into this?

Thanks everyone!

Best,

Lyric

[Stephanie P.]

Those rates are normal and add in a couple of points and some fees like underwriting/processing and of course appraisal and credit report, not to mention taxes, insurance, title insurance, settlement etc...

They can't offer you a hard number because they don't know what your credit score will be 6 months from now, they don't know what the property's DSCR will be until you rent it, they don't know exactly what the appraised value will be and may have to adjust the ltv, and they can't predict what the economy is going to do 6 months from now so a ballpark figure of where rates are right now is about all they can do.

Here's an example of how things can change throughout a loan.

Recent borrower does an application and asks for a quote.  I tell him with the information you just provided, your rate will be 4.25%.  He agrees, we send disclosures and pull credit and his score is 20 points lower than what he told me.  That puts him into a different pricing tier.  Rate's now 4.5%.  We go through the process and the appraisal comes in low. I have to adjust the loan to value and instead of 4.5% at 75% loan to value, the new rate is 4.75% at 80%.  Same points and fees etc..., but the rate changed due to circumstances of the loan so a hard and fast 4.25% or whatever is nice if it happens, but be prepared for a little change.

Hope that helps

Stephanie