Refinancing out of hard money with a conventional mortgage loan

[Carlos Webel]

Hi all,

I'm working on my acquisition and financing model for my new Houston area based rental properties portfolio. The plan is to purchase the properties with private or hard money, rehab and refinance out of the initial loan using standard 30 year fixed mortgages. I'm currently using a lender that has a very convenient setup whereby they provide the hard money loan at a competitive rate and then, after rehab is completed, I refinance with them to a 30 year fixed loan. The advantage of this setup is the logistics and convenience (all done with the same lender), plus the fact that the re-finance amount is based on the ARV of the property (not the initial loan) and can be re-financed immediately (no freezing period). The disadvantage is the cost and lack of flexibility. I get 2.5 points charged with each one of the two loans, I have no leverage to negotiate the 30Y mortgage rate, no closing credits and if I want to refinance with another lender in the market I'm charged a hefty fee that will make the other loan unattractive anyways. All this said, they offer a very good solution under its constrains, but I need to have other alternatives available in order to make some of the deals economic based on my criteria.

Talking to few of the lenders out there (including Sebonic, Quicken Loans, etc) I realized that the process is not standard within the different companies. Some of them offer to finance up to 10 loans, some up to 4. Some of them will refinance immediately but only up to 75% of the previous loan amount (not the appraised value of the property). The others will refinance 75% of the appraised value but only after a cooling period of 6 months. All in all, I haven't found a solution with the mortgage lenders that allow me to free up most of my capital quick enough to purchase the amount of properties my plan requires for this year.

I'm seeking out for advice from people that has encountered or solved this issue. Any ideas and comments are appreciated. 

Rgds, Carlos       

[Darren Eady]

I'm not sure what you've found. It is a pretty unique situation for a HML to offer conventional financing once the rehab is completed. How will you know if you'll qualify for bank rates in advance, what surprises might take place at the closing of the 1st and 2nd loans? Which lender is promising this program? I have no issue with the points and fees, but can they perform for you or are you going to end up stuck with a hard money loan and rate you cannot get yourself out of?