Hi BP! Is it possible to use a hard money lender to fix up a property and then use a conventional mortgage to pay off the hard money lender if you want to move into the fixed up property as a primary residence?
Yes! This is a fantastic strategy and very common. Use the hard money for the acquisition and rehab and then refi into a traditional mortgage. Realize hard money is a short term loan at a higher interest rate so the quicker you can refi out the better.
@Andrew Michael thanks! I've heard that with a rental there is a seasoning period before a bank will lend so you have to wait to refinance. Does this hold true if you're moving into the fixed up property as a primary residence?
@Michael Douglas Christensen If its a primary residence, when why would you use hard money to purchase + rehab? You can you a rehab loan like FHA 203(k) or Fannie Mae HomeStyle Renovation loan.
@Upen Patel I've thought of doing that but I talked to a person who does loans to prequalify and I was told a 203k loan is a ton of paperwork and very difficult to get. I'd ideally like to do this quickly had was hoping to avoid a lengthy process.
@Andrew Michael Most HML I know would never touch this scenario.. its a loan on a primary and full NMLS licensing required are you NMLS licensed and registered ???
@Michael Douglas Christensen , first it is very fiscally irresponsible to go with hard money for your primary residence. You will not be making money to pay it off from rents, it will have to come out of your paycheck. If you make plenty enough money to afford hard money rates you should be able to save money up to buy. There is also the Dodd/Frank act issues when loaning on property that will be a primary residence. Dodd/Frank does not apply to loans to investors on houses they will not occupy.
@Jerry W. for loans on primary it becomes a QM loan.. and full underwriting is required.
this is why a HML that actually follows DF and QM would never touch the loan.. too much paper work and exposure.. to what they call a sub prime loan IE a loan at a rate that is deemed high cost..
of course you probably have people fib a little on their intentions.. but that's why when you see instructions from HML there will be a document that you sign and sometimes right big bold face in the deed that this is a commercial purpose loan and the borrower is stating they will NOT be moving in or using as a primary..
@Michael Douglas Christensen lol, you are right. That 203k loan is a beast and nobody likes it. But the Fannie Mae HomeStyle loan is a much more forgiving loan. Not a lot of lenders carry it but it's a SIGNIFICANTLY better loan that the FHA 203k loan. Look into it.
@Michael Douglas Christensen Looks like your lender doesn't know FHA 203(k) or can't do them. It is preposterous that he would push you towards a HML instead of a conventional rehab loan.
Also, as @Jay Hinrichs pointed out, no HML will give you the loan as a primary and title in your name. Hey will insist on LLC title. Once you do that you are screwed. With new guidelines, the property title has to season in your name for 6 months before you can do a cash-out. So you would have to pay off the HML with cash, transfer title to your name, let it season for 6 months before you can do the cash-out. There goes your "hoping to avoid a lengthy process".
Fire your lender and find a new one.
You are getting good advice.
Is it doable ...probably yes.
Is it wise...absolutely not.
@Michael Douglas Christensen you are getting good advice from @Jerry W. @Jay Hinrichs and @Upen Patel To add to what they have said, even if it was possible to get a HML on your primary, which it appears it isn't, it doesn't make sense to do that. You can take advantage of great low interest, long term financing on your primary. Here are a couple options to consider:
- Take out a 30 year loan and after you improve the property get it reappraised and take out a HELOC to get extra value out of the property.
- Take out an ARM so that you can have the lowest interest rate and payment. Then refinance into a 30 year fixed after the rehab is completed.
You mentioned the seasoning period and it is true that this process may take longer than you like, but in the grand scheme of things, what is 6 months or a year? The current real estate market is rushing towards a peak, so you are getting in near the top anyways. Part of conditioning as an investor is to stay calm and make logical decisions.
@Jay Hinrichs Yes sorry you are 100% correct, I should have clarified. We would require it to be purchased in an LLC.
@Andrew Michael NP and you probably have a disclaimer that the use is for commericial purposes and the use of the funds from the HML is NOT to be used for a primary residence.. that's what I see in all the docs I look at all over the country.
@Jay Hinrichs Correct, we require the property be purchased in an LLC, delivered vacant, and remain vacant during the course of our loan.
I made some assumptions that I should have clarified a bit more for the original poster but his basic idea is used by several of our borrowers.
Maybe try to eliminate Hard money from the scenario. If you can control the property with an Option agreement with the right to renovate the property, even use the cost to renovate as your consideration. Then to fund the renovation use a private lender (tricky part is how to secure the private lender). Once the property is renovated then you exercise your option to buy and now the house can qualify even for FHA financing.
Thanks for the input everyone. Very helpful and insightful. Sounds like HML is probably not the best way to go for this scenario.
I just picked up two properties at once
2.as a cash purchase ,has a separate unit in back that can be rented
I have a primary residence I want to sell and move in the smaller house w\ the sep.studio
My job downsized so I decided to do this f.t
I need the 20:/down pmt on the conv. Loan house
And 110,00 for the cash purchase
I always forgot to mention .This is a great area to rent .
I can rent conv. Loan house For $1650 + so I would like to do a. Lease option
My current residence - lease option $rent 1200.
The cash house - rent the main house out\live in studio house rent $1,200
What are some options ? To purchase both closing in 45 days?
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