Refinancing hard money loans through a bank.

[Jameson Sullivan]

If for whatever reason I choose to use a hard money loan to acquire a property and do a rehab and I want to REFI through a bank to get my money out and pay off the new loan at 3 or 4 % versus 10 or 15 percent with the hard money, is that a difficult process? Would it be basically like applying for a new loan as if I hadn't already bought the house?

Thanks!

Jameson Sullivan

[Richard Scholtz]

Hello @Jameson Sullivan

Lima has some quirks....for instance they want the actual corporate docs from the State for your LLC......which is a hassle....The will not accept just a WA state lookup..for the State website as most others will. Lima does compete with Black Rock and 3 others that do similar business but they are not the most cost effective.

As for the numbers...

You buy a house for  100K with hardmoney in Tacoma .....maybe you put 20K down so you owe 80K to a ((SHORT TERM 12 month)) hard money lender as  all the windows are busted and it is a mess and at that point only worth the 100K you paid.....but in a great neighborhood of 200K homes.

You spend 30K on the Repairs.....

.If you hold it 90 days....and you are now in title ....

After you fix it ...It is then re-appraised........once it all pretty and has a tenant in ....for a new fixed 30 year loan based on it FINISHED A.R.V. value...

Your new REFINANCE loan is based on 75=80% of the ARV finished value.....which I hope is about now worth 160,000 - 170,000.oo

So 75% of the  new160,000  = $120,000 new loan amount.....which pays off your hard money loan of 80K and the 30,ooo repairs your put in ,....and almost all your down payment.

You have now recovered all your costs in  place....and have a fixed loan covered by the rents...

Wash Spin Rinse Repeat.....

As for the Rates..we are both a FNMA lender and commercial lender....so these are accurate..

1) FNMA owns 80% of all residential mortgage paper in this country and 30 year fixed - Full Doc loans at 3.75% to 4.25% => Credit Union and Residential A paper lenders VA -FHA -USDA etc

2) Commercial loans - 30 year am 5,7, or 10 year term = full doc loans price with good credit price at 4.375% - 5.5% ==> Think community banks and big 5  - WFC  - BOA - Chase etc and local Portfolio S+L's and some Commercial Credit Unions....

3) Stated Income Hedge funds....30 year fixed - No Doc  or  Low Doc with Great Scores ===>  loans price at 5.75%  - 7.5% ...think Black Rock, Velocity,  Lima,  RNC and others

4) Hard Money = short term to 3 years....prices at 8% - 10% 

There are no hedge funds or finance companies like Velocity or Lima or RNC or  Blackrock that will make you a  loan < under 6% as they need the 300 basis point spread over the 10 year commercial swap rate to cover their cost of funds...regardless of L.T.V.

I get wholesale rate sheets from some 30 lenders a day/week....and that is the risk/reward spread.

Hope that helps explain the process and the tiers of lenders...