Can you always refinance a hard money loan?

Question

Hello all,

I've been trying to learn as much as I can about creative financing. Right now, I'm currently reading @Brandon Turner's "Investing in Real Estate with No (and Low) Money Down" -- it's an extremely informative and well written book, btw -- and I'm at the part that it's talking about Hard Money Lenders and how you can use it for a Buy & Hold.

I understand that you eventually reach a limit of how many conventional loans you can have, which is why you would turn to HML eventually. But, I was wondering if you are always able to refinance a hard money loan? Or is there a limit like there is with getting conventional loans in the first place?

I don't understand much about the limitations of banks and the amount of loans you can have, either. I just kind of know the concept. So, if anyone would like to explain that bit to me, too, I would greatly appreciate it. Though, if not, I'm sure I'll eventually run into it in my research/studies.

Thank you!

Sthefany

Mark Safrin · Answer

@Sthefany Lamoureux

I only have expertise regarding those refinancing to our (HML) 30 year fixed loans. Personal income is not considered however Mid FICO, DTI and LTV is. Also whether it's a refi or a cashout refi.

Alex Bekeza · Answer

@Sthefany Lamoureux The main draw to commercial loans is that there is no personal income requirements.

Mark Safrin · Answer

I would suggest that most investors who turn to HMLs do it for other reasons than the loan number limits set by conventional lenders.

It is usually because they need short term loans that are asset rather than income based or they are rehabbing which many banks don't like funding or their deals need loans they close in 2-3 weeks rather than 30-45+ days.

Once the properties are stabilized banks and commercial lenders are where most but far from all of our clients go to refinance the short term loans we lent them. Indeed they take it for granted that they can do so.

Interestingly, we have found quite a lot of interest in our (still Hard Money) 30 year fixed fully amortized loans. For refis. The interest rate is lower than our short term, interest only loans but still higher than conventional lender loans. So there are evidently lots of people out there who still find they cannot or would rather not refi with conventional lenders. Some of them just prefer the ease of using a HML, some are income poor but asset rich and some, I guess, just like to use one lender they have come to trust.

Wayne Brooks · Answer

You can have conventional loans on up to ten properties(10 properties with loans of any kind).....assuming you financially qualify.  HML’s are Not the answer after that, they are used for short term loans for properties whose conditions won’t qualify for conventional loans.  After your 10 conventional loans, you’d typically just go to “commercial” loans.....20-25 year amortizations, 5-7 year balloons, 1% or so higher rates.

Sthefany Lamoureux · Answer

@Alex Bekeza Oh okay, thank you for answering my questions!

@Benjamin Hurwitz Okay, thank you for your input!

Sthefany Lamoureux · Answer

@Benjamin Hurwitz Thank you very much for all of the information you provided. All of what you said makes a lot of sense. Also, I didn't know that Hard Money Loans that were long-term existed. That's really interesting to learn!

@Alex Bekeza Thank you for explaining all of that! I didn't know the difference between Commercial vs a regular Residential loan. I'm glad someone mentioned it on here so it came up in conversation. I'm assuming then that Commercial Loans don't have a limit like conventional loans do, right?

Also, just for the sake of understanding this. When it comes to refinancing (whether it's a HML or a regular or Commercial Loan) is that also based on things like DTI ratio, FICO, income and other things? Or is it different at all when you refinance the different kind of loans?

Again, thank you both for responding! This is super informative.

Alex Bekeza · Answer

@Sthefany Lamoureux There is a strange semantic difference to be drawn between Commercial loans in general and financing for Commercial Property types like retail/industrial.  Usually when people are talking about utilizing a commercial loan over a conventional product their referring to a program for 1-4 unit residential properties.  I suppose they're coined "commercial loans" because they're more business purpose in nature and funded by private institutions not backed by the government sponsored entities.

Commercial loan products are available that do not effect your conventional mortgage limit. They're based on FICO, experience, and DSCR without any DTI requirements.

This is a much better alternative to HMLs in 9/10 scenarios because you're still able to get low rates on 30 year terms.

People rely on these not just because they've hit their 10 conventional loan limit but more commonly because their DTI does not qualify them for conventional.  Typically, these are self employed investors who are able to write off the majority of their income as "business expenses."

In general with commercial loans you'll find more flexibility, shorter seasoning periods, alternative underwriting methods and with all of that of course rates that are higher than conventional.  Figure the 5%-8% range in general.

Hope this helps a little!

Sthefany Lamoureux · Answer

@Wayne Brooks Thank you for responding. I understand the conditions in which a HML should be used. I would just like the information I was seeking as reference for later on if needed. Also, aren't commercial loans for commercial buildings? What happens then if I don't want to go to commercial?

Can you always refinance a hard money loan?

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