Why do I need to use Hard money?

[Kent Harris]

I recently purchased a house for $120,000 in cash. The cost approach on the house is $185,000 after renovations. If I go through a conventional lender they are requiring me to use a hard money lender to renovate the house. The Hard Money lender is charging me 3 points. 2 on the front end and 1 point on the back end. Total closing cost will be $4,700. $2,100 of that will be origination fees. When I did a cash close my closing costs were only $800.  Why is the conventional lender requiring me to go through a hard money lender when I have the money to do the renovations? The Conventional Mortgage company said they can only loan me $90,000 or 75% of the cash purchase price, If I don't go through the Hard Money lender. If I do go through the Hard Money lender they will loan me $138,750 after the renovations are completed.

[Wayne Brooks]

What they are telling you is they will only lend you 75% of your purchase price (usually plus 75% of Reno costs) for the first 6-12 months. After it will be 75% of a current appraisal at the time of the loan. If you get a HML loan, they would then be doing a "rate and term refinance", as there is no 6-12 month seasoning for that, assuming of course your HML loan was for that stated amount.