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Refinancing a Hard Money Loan

For those looking to invest in real estate, hard money loans can be the perfect vehicle to assist in expanding your investment portfolio. Hard money loans are quick and easy ways to raise capital for property investment and require less personal financial history into account. Instead of personal creditworthiness, the loan relies on the property itself as collateral. This allows new investors and house-flippers alike to access this profitable venture, without requiring the normal background checks of conventional loans which take months at a time. When looking to secure a loan that frees up cash flow, hard money loans are a great way to foray into real estate investment.


Along these lines, as hard money loans provide quick access to capital, there is usually a much shorter period of loan repayment. As the lender is taking a higher risk with this loan form, higher rates usually accompany hard money loans as well. Hard money loans are often used for construction fees, which poses another set of risks for the lender. When looking to take out a hard money loan, it is important to have a stringent exit plan and repayment plan for the lender to view. If you are able to secure a hard money loan with this background in mind, it can be a great asset to real estate investment. Once you are in a position to permanently rent out a property secured with a hard money loan, it may be time to look into refinancing.


Can I Refinance a Hard Money Loan?


Although trickier than a conventional loan, it is possible to refinance a hard money loan. Hard money loans come with higher interest rates and shorter repayment windows due to the riskier nature of the loan option. However, it is still possible to refinance this form of a loan.


Three forms of refinancing include conventional bank loans, government backed loans, and finally long term-rental loans. Conventional loans follow the more typical application process where personal credit history is taken into high consideration, but include lower interest rates for the lender. Rental loans provide more flexibility, and may not take credit into as much of an account as the conventional loan. For whichever loan option you choose, it is important to take some steps into account before applying to refinance.

How Do I Refinance a Hard Money Loan?


Refinancing a hard money loan may look different depending on which route you choose, but there are a few key factors to keep in mind before applying.


  • Be Rent Ready

A lot of times hard money loans are utilized for construction purposes. Before applying for refinancing, lenders like to see that whatever property you have invested in is ready to go, even with smaller jobs around the property. It is advisable to not plan for refinancing before construction is complete.


  • Check Your Credit

Most long-term lenders will look to see creditworthiness for long-term loans. This means that the better the credit history, the more likely you will secure refinancing options. In the case of conventional loans, they usually require a credit score of at least 620, so if that is not feasible, it is advisable to look at long-term rental options. Along with this, it is important to make sure you have a positive history of repayment for the hard money loan. Although not reported to credit companies, loan lenders will oftentimes ask for payment history on the current loan to see whether you are ready for refinancing.


  • Look At Your Seasoning

Before refinancing, a lender will want to know the total cost of the property. This includes the purchase price, how much the buyer invested, and its total appraisal. The lender will compare the purchase and investment price to the total cost. The “seasoning,” or how long you’ve owned the property, is a factor in whether the lender is willing to invest. Oftentimes shorter times owning the property will cap the loan at a certain value. Being prepared to face a maximum loan value if you have owned a property for six or nine months ensures that you are prepared.


Refinancing a hard money loan can be helpful in creating lower interest rates and setting up a permanent rental property. Knowing what to expect in this process and gaining insight from helpful lenders will ensure success in this venture.

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