Is it hard to refinance a hard money loan into a mortgage?

Question

Sorry if this isn't the correct sub to post in.

I'm a house flipper, I primarily do fix n flips and recently got an offer from my hard money lender where they want to fund me up 90% of the cost for multi family properties. I built a pretty solid relationship with them so I suppose thats why they're offering so high for me. However, this is simply just a fix n flip loan, not a DSCR loan. So, it'd be a 12 month of interest only payments before full principle is due.

So, my strategy is the following.. Similar to BRRR I believe. Use the hard money fix n flip loan to acquire the property, do necessary repairs(If any), and just refinance the property into a conventional mortgage. However, I wasn't sure if its difficult to refinance a fix n flip loan into a 20 or 30 year loan. The last thing I'd want is to be unable to refinance into a traditional mortgage, then i'd be stuck with a rather massive bill to pay at month 12 that'd i'd be unable to actually pay haha. I'd probably wanna cash out refinance, and only pull out the 10% I put into the building, but thats really it. Also, any specific lenders I should try to focus on? I've heard a lot about working with local banks.

Does my strategy make sense? Or is it unrealistic? Thanks!

Robert Rixer · Answer

The new lender wouldn't care what the current loan is, as long as it's paid off. Assuming you execute the project properly and the rents support the mortgage payments, it should be no problem at all.

Joshua Jones · Answer

Thank you @John Warren. @Faiz Kanash when it comes to getting out of the hard money, which I am assuming title is in a LLC, it is possible to do that. If you know you are going to keep this place for a while, getting into long term secure financing is advantageous. Looking at your whole situation to see if you qualify for a regular loan might be a better option that doing a DSCR. As long as the hard money loan is recorded on title and we are not pulling extra cash out, a refinance is something you could do relatively fast without waiting. Feel free to message me with any more questions.

John Warren · Answer

@Faiz Kanash I don't think this is hard at all, assuming you are buying a good deal. You should connect with a residential lender like @Joshua Jones before you pursue commercial or DSCR loans. I think as long as you have had the deal for the 12 months, you should be ok for a conventional loan though.

Shea Murray · Answer

@Faiz Kanash

Sounds like a fun project! Just sent you a direct message. I do think the strategy makes sense.

Robin Simon · Answer

On April 1 of this year, conventional loans (Fannie/Freddie backed) changed the seasoning requirements for cash-out refinances for BRRRR from 6 to 12 months so that threw a wrench in a lot of people with this method.  Depending on how many units the property is and that you have solid credit and are able to rent it out, refinancing in as little as 3-6 months with a DSCR lender should be fairly easy/reasonable

Stacy Raskin · Answer

There are some lenders that do both fix and flip financing and also DSCR loans. In that case, no seasoning or waiting to refinance to the long term loan such as a DSCR loan. If different lenders, many will require a 6 month seasoning period from when you purchased the property to rehab.

Dennis Muno · Answer

Hello Falz,

It shouldn't be hard to refinance your hard money into a longer term loan program like a 30yr fixed DSCR loan. Of course, as long as the property is rehabbed well and the refinance LTV covers the hard money balance owed. Also, your credit  matter to an extent as well as if the property will cashflow(some lenders use the market rent) or if there are already tenants in the property with signed lease contracts. So as long as the LTV with respect to the ARV can cover the payoff you should be fine.

Erik Estrada · Answer

Hey Faiz,

How many units? Most lenders can do 90% Purchase, 100% Rehab financed on 1-4 units if experienced.

On the Refi portion, it honestly depends on the ARV and estimated rents. Most lenders will require 3-6 months title seasoning on a cash out refi with a DSCR loan. Depending on the seasoning period, you may be able to cash out 70-75% LTV.

Your hard money lender might only lend you up to 70% of the ARV, which could help secure your exit. If you plain simply want to pay off the hard money loan, you can go up to 80% LTV on a rate and term refinance, with no seasoning requirement.