Ballooning out of a Hard Money Loan

[Mike Musarra]

I'm purchasing a home in a suburb of Cleveland with Hard Money.  My original intention was to flip the property and use the proceeds to help purchase a small multi-family home but am now considering holding the Single Family property as a rental.  

The Hardmoney lender will need ballooned out at 91k in 12 months.  I will not be able to do a cashout refi with a conventional lender for 12 months, and although Fannie and Freddie require a 12 month seasoning period for cashout refi's, it seems most convetional lenders, even in a straight out refinance (with no cash out) require 12 months as a policy.

Does anyone have any recommendations for long term lenders that will balloon me out on a long term loan?

ARV for the property will be about 150k - possibly 170k if converted to a 3 bedroom which is an option I'm exploring.

As they say, Thanks in advance.

[Devin Peterson]

Quote from @Mike Musarra:

I'm purchasing a home in a suburb of Cleveland with Hard Money.  My original intention was to flip the property and use the proceeds to help purchase a small multi-family home but am now considering holding the Single Family property as a rental.  

The Hardmoney lender will need ballooned out at 91k in 12 months.  I will not be able to do a cashout refi with a conventional lender for 12 months, and although Fannie and Freddie require a 12 month seasoning period for cashout refi's, it seems most convetional lenders, even in a straight out refinance (with no cash out) require 12 months as a policy.

Does anyone have any recommendations for long term lenders that will balloon me out on a long term loan?

ARV for the property will be about 150k - possibly 170k if converted to a 3 bedroom which is an option I'm exploring.

As they say, Thanks in advance.

Mike, with a DSCR cash out refinance you only need to wait 90 days to get long term debt. Quasi govt’ loans are 12 months - but these investor specific products allow you scale quicker. Some lenders may tell you that NO seasoning is required, but some stipulations may apply as to what terms you’re being offered. Shop with an experienced investment focused broker to get multiple quoted terms! Good luck!

[Robin Simon]

Quote from @Mike Musarra:

I'm purchasing a home in a suburb of Cleveland with Hard Money.  My original intention was to flip the property and use the proceeds to help purchase a small multi-family home but am now considering holding the Single Family property as a rental.  

The Hardmoney lender will need ballooned out at 91k in 12 months.  I will not be able to do a cashout refi with a conventional lender for 12 months, and although Fannie and Freddie require a 12 month seasoning period for cashout refi's, it seems most convetional lenders, even in a straight out refinance (with no cash out) require 12 months as a policy.

Does anyone have any recommendations for long term lenders that will balloon me out on a long term loan?

ARV for the property will be about 150k - possibly 170k if converted to a 3 bedroom which is an option I'm exploring.

As they say, Thanks in advance.

Check out this article recently published on BiggerPockets that should help on this exact topic - all the options for BRRRR vs. Flips, etc.

https://www.biggerpockets.com/blog/brrrr-loans-what-are-the-...

[Patrick Roberts]

DSCR is your best path here. The various lenders out there will have different requirements for seasoning, experience, cashing out on forced appreciation (if you add a bedroom), etc. Cashout for Conventional products will be 12 months seasoning.

[Mike Klarman]

You can do a 75% cash out DSCR as soon as it is rented. The one caveat I have about that area is that it is starting to be classified as a declining market. I have financed many deals in that area and it seems prices are trending down and no one is getting the ARV they thought.

[Mike Musarra]

The suburb I'm buying into here is in the top 10 fastest appreciating cities in Ohio.  Granted, it's Ohio and not seeing appreciation like we've seen in Florida - but this area in particular is seemingly healthy. 

I'll be on the lookout for evidence of declines though - I appreciate the warning.

[Jason Park]

Quote from @Mike Musarra:

I'm purchasing a home in a suburb of Cleveland with Hard Money.  My original intention was to flip the property and use the proceeds to help purchase a small multi-family home but am now considering holding the Single Family property as a rental.  

The Hardmoney lender will need ballooned out at 91k in 12 months.  I will not be able to do a cashout refi with a conventional lender for 12 months, and although Fannie and Freddie require a 12 month seasoning period for cashout refi's, it seems most convetional lenders, even in a straight out refinance (with no cash out) require 12 months as a policy.

Does anyone have any recommendations for long term lenders that will balloon me out on a long term loan?

ARV for the property will be about 150k - possibly 170k if converted to a 3 bedroom which is an option I'm exploring.

As they say, Thanks in advance.

 Hey Mike,

As mentioned above DSCR is probably your best option here! 70-80% cashout refinance. You're done with the rehab? Is it currently rented?

I would get a tenant in the unit and apply for a DSCR loan to cash out!

Hope this helps!

[Stephanie P.]

Quote from @Mike Musarra:

I'm purchasing a home in a suburb of Cleveland with Hard Money.  My original intention was to flip the property and use the proceeds to help purchase a small multi-family home but am now considering holding the Single Family property as a rental.  

The Hardmoney lender will need ballooned out at 91k in 12 months.  I will not be able to do a cashout refi with a conventional lender for 12 months, and although Fannie and Freddie require a 12 month seasoning period for cashout refi's, it seems most convetional lenders, even in a straight out refinance (with no cash out) require 12 months as a policy.

Does anyone have any recommendations for long term lenders that will balloon me out on a long term loan?

ARV for the property will be about 150k - possibly 170k if converted to a 3 bedroom which is an option I'm exploring.

As they say, Thanks in advance.

 Hey Mike

As others have said, a DSCR loan is your next option when conventional options are exhausted.

90 days from purchase date is the rule of thumb and if you can keep your loan to value at 70% or below, you'll find your best financing.  Maxing out the ltv will cost you money.

Hope that helps

Stephanie

[Brandon Croucier]

Sounds like a solution a DSCR loan could solve, happy to connect and see what that would look like for you!

[Stacy Raskin]

Some DSCR lenders will use the new appraised value after three months so you don't have to wait longer than that to get up to 75% loan to value (LTV) cash out.

DSCR loans won't use your income to underwrite the loan.

DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.

Here's a bit more in detail about how rates are calculated for DSCR loans:

1. Credit score- the higher the best. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.

4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.

I've included an example below to help illustrate this.

So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

See example below:

DSCR < 1

Principal + Interest = $1,700

Taxes = $350, Insurance = $100, Association Dues = $50

Total PITIA = $2200

Rent = $2000

DSCR = Rent/PITIA = 2000/2200 = 0.91

Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

DSCR >1

Principal + Interest = $1,500

Taxes = $250, Insurance = $100, Association Dues = $25

Total PITIA = $1875 Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.

DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

Happy to connect to discuss further.

[Mike Musarra]

Quote from @Jason Park:

Quote from @Mike Musarra:

I'm purchasing a home in a suburb of Cleveland with Hard Money.  My original intention was to flip the property and use the proceeds to help purchase a small multi-family home but am now considering holding the Single Family property as a rental.  

The Hardmoney lender will need ballooned out at 91k in 12 months.  I will not be able to do a cashout refi with a conventional lender for 12 months, and although Fannie and Freddie require a 12 month seasoning period for cashout refi's, it seems most convetional lenders, even in a straight out refinance (with no cash out) require 12 months as a policy.

Does anyone have any recommendations for long term lenders that will balloon me out on a long term loan?

ARV for the property will be about 150k - possibly 170k if converted to a 3 bedroom which is an option I'm exploring.

As they say, Thanks in advance.

 Hey Mike,

As mentioned above DSCR is probably your best option here! 70-80% cashout refinance. You're done with the rehab? Is it currently rented?

I would get a tenant in the unit and apply for a DSCR loan to cash out!

Hope this helps!

Not yet - I'm exploring options and seeing if I can avoid a 12 month seasoning period - looks like I can with a DSCR. Thanks for reaching out!

[Mike Musarra]

Quote from @Stacy Raskin:

Some DSCR lenders will use the new appraised value after three months so you don't have to wait longer than that to get up to 75% loan to value (LTV) cash out.

DSCR loans won't use your income to underwrite the loan.

DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.

Here's a bit more in detail about how rates are calculated for DSCR loans:

1. Credit score- the higher the best. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.

4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.

I've included an example below to help illustrate this.

So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

See example below:

DSCR < 1

Principal + Interest = $1,700

Taxes = $350, Insurance = $100, Association Dues = $50

Total PITIA = $2200

Rent = $2000

DSCR = Rent/PITIA = 2000/2200 = 0.91

Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

DSCR >1

Principal + Interest = $1,500

Taxes = $250, Insurance = $100, Association Dues = $25

Total PITIA = $1875 Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.

DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

Happy to connect to discuss further.

 Thanks for the breakdown - very helpful.

In regards to how lenders look at the rent - I'm ultimately wanting to make this a Mid Term Rental if I hold it.  Given that these are shorter term lease aggreements, how do lenders typically view them?

[Stacy Raskin]

Generally, lenders are going to do the rent calculation based on a long term rental either based on the actual rent on the lease or the projected rent from an appraiser's rent survey. 

Depending on the lender, short term rentals usually require the borrower to be considered an experienced investor which for some lenders means you have held an investment property for at least a year. There are less lenders that do short term rental loans and they will usually have a reduced loan to value / LTV. The above varies based on the lender as large investment property lenders decide on their own guidelines that are often similar but not identical.

[Mike Bargetto]

@Mike Musarra if you’re looking for options feel free to shoot me a DM. Like other comments suggest, you may be able to secure long term debt sooner but if for whatever reason that is not the case feel free to connect with me. Thanks.

[Debbie Fales]

Lately, we've seen a lot of our clients pivot from a fix-and-flip to a fix-and-rent strategy. We offer 30, 20, 15-year fixed-rate options as well as 5,7,or 10 year ARMs. Our rates are starting in the low-7s for our DSCR products. Hope this helps - good luck!

[Anderson S.]

Given your situation, you may want to explore portfolio lenders or local credit unions, as they often have more flexible guidelines than conventional lenders like Fannie Mae or Freddie Mac. These institutions might be willing to provide a long-term refinance option even without the 12-month seasoning period. Another option could be a private lender or a community bank that specializes in investment properties. It's essential to present your case with detailed financials and the property's potential ARV to increase your chances of securing a favorable loan.

[Stephanie Medellin]

Do you absolutely need cash out?  You can potentially qualify for a regular rate & term refinance of the 91k loan (plus closing costs) within 12 months.  

You could also start your transaction ahead of the 12 month mark and plan to close right at the end of the 12 months for a cash out refinance.  You don't have to wait for 12 months to pass to apply for the new loan.  You just can't close before 12 months is up.  You can talk to your new lender to plan your closing around this timeline.

[Scott Wolf]

Quote from @Mike Musarra:

I'm purchasing a home in a suburb of Cleveland with Hard Money.  My original intention was to flip the property and use the proceeds to help purchase a small multi-family home but am now considering holding the Single Family property as a rental.  

The Hardmoney lender will need ballooned out at 91k in 12 months.  I will not be able to do a cashout refi with a conventional lender for 12 months, and although Fannie and Freddie require a 12 month seasoning period for cashout refi's, it seems most convetional lenders, even in a straight out refinance (with no cash out) require 12 months as a policy.

Does anyone have any recommendations for long term lenders that will balloon me out on a long term loan?

ARV for the property will be about 150k - possibly 170k if converted to a 3 bedroom which is an option I'm exploring.

As they say, Thanks in advance.

 We can get that done.

[Mike Musarra]

Quote from @Stephanie Medellin:

Do you absolutely need cash out?  You can potentially qualify for a regular rate & term refinance of the 91k loan (plus closing costs) within 12 months.  

You could also start your transaction ahead of the 12 month mark and plan to close right at the end of the 12 months for a cash out refinance.  You don't have to wait for 12 months to pass to apply for the new loan.  You just can't close before 12 months is up.  You can talk to your new lender to plan your closing around this timeline.

 Thanks for that clarification.  It's not absolutely needed regarding the cash out.  But it's more preferable. 

[Chris Seveney]

Quote from @Mike Musarra:

I'm purchasing a home in a suburb of Cleveland with Hard Money.  My original intention was to flip the property and use the proceeds to help purchase a small multi-family home but am now considering holding the Single Family property as a rental.  

The Hardmoney lender will need ballooned out at 91k in 12 months.  I will not be able to do a cashout refi with a conventional lender for 12 months, and although Fannie and Freddie require a 12 month seasoning period for cashout refi's, it seems most convetional lenders, even in a straight out refinance (with no cash out) require 12 months as a policy.

Does anyone have any recommendations for long term lenders that will balloon me out on a long term loan?

ARV for the property will be about 150k - possibly 170k if converted to a 3 bedroom which is an option I'm exploring.

As they say, Thanks in advance.

Lots of great answers on here - especially going to DSCR - one thing I wanted to add is as part of your hard money loan, see if they have option for 3 or 6 month extension. That is common from many lenders and it will also give you more time if need be if one of the other options does not work. Typically there is a fee for this but its always good to have options.

[Jay Hinrichs]

Quote from @Chris Seveney:

Quote from @Mike Musarra:

I'm purchasing a home in a suburb of Cleveland with Hard Money.  My original intention was to flip the property and use the proceeds to help purchase a small multi-family home but am now considering holding the Single Family property as a rental.  

The Hardmoney lender will need ballooned out at 91k in 12 months.  I will not be able to do a cashout refi with a conventional lender for 12 months, and although Fannie and Freddie require a 12 month seasoning period for cashout refi's, it seems most convetional lenders, even in a straight out refinance (with no cash out) require 12 months as a policy.

Does anyone have any recommendations for long term lenders that will balloon me out on a long term loan?

ARV for the property will be about 150k - possibly 170k if converted to a 3 bedroom which is an option I'm exploring.

As they say, Thanks in advance.

Lots of great answers on here - especially going to DSCR - one thing I wanted to add is as part of your hard money loan, see if they have option for 3 or 6 month extension. That is common from many lenders and it will also give you more time if need be if one of the other options does not work. Typically there is a fee for this but its always good to have options.

Wow if you need a DSCR loan BP is the place to be.. lots of talented lenders.. My clients refi out of my fix and flip loans in 90 to 180 days not sure about cash out.. but to settle with the higher rate short term loan.. speed is important for them.

[Ko Kashiwagi]

Quote from @Mike Musarra:

Quote from @Stacy Raskin:

Some DSCR lenders will use the new appraised value after three months so you don't have to wait longer than that to get up to 75% loan to value (LTV) cash out.

DSCR loans won't use your income to underwrite the loan.

DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.

Here's a bit more in detail about how rates are calculated for DSCR loans:

1. Credit score- the higher the best. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.

4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.

I've included an example below to help illustrate this.

So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

See example below:

DSCR < 1

Principal + Interest = $1,700

Taxes = $350, Insurance = $100, Association Dues = $50

Total PITIA = $2200

Rent = $2000

DSCR = Rent/PITIA = 2000/2200 = 0.91

Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

DSCR >1

Principal + Interest = $1,500

Taxes = $250, Insurance = $100, Association Dues = $25

Total PITIA = $1875 Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.

DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

Happy to connect to discuss further.

 Thanks for the breakdown - very helpful.

In regards to how lenders look at the rent - I'm ultimately wanting to make this a Mid Term Rental if I hold it.  Given that these are shorter term lease aggreements, how do lenders typically view them?

 Hi Mike,

There's DSCR programs out there for MTR so that shouldn't be a big problem as long as you confirm with the lender beforehand they allow it. There's also programs that allows vacant so you don't have to go through the hassle of getting a lease before renting out to get the loan. Make sure to check reviews and go with a reputable one!

[Patrick Drury]

@Mike Musarra  
If you plan on doing a BRRRRR your best bet will be refinancing into a DSCR loan. They typically have 3-6 month seasoning periods depending on the lender. I actually have 1 lender that will do cash-out refi's with no seasoning requirements