Refinancing hard money loan into traditional lending

[Patrick Boutin]

Hey guys,

Quick question as I just got an idea that I wanted to explore. With traditional financing, it seems that 20% down is the norm versus the 3% - 5% lenders may be willing to accept for owner occupied financing (and I can understand the lender's rationale behind this).

That being said, I am trying to find out ways of getting into an investment property with less out of pocket (aren't we all?). I am ok with putting 10% but am a little reluctant to put more as I would like to get into more deals further down the line and don't want to put all my working capital.

Therefore, how feasible or realistic would it be for me to try to finance a deal with a hard money lender and then refinance with tradicional financing? I have found a few hard money lenders which don't require 20% down (I have found a few who might go as high as 90% LVT) and then once I own the property, refinance the hard money loan into a 30yr conventional one with a much lower rate and longer term?

A little bit more about myself. I have a decent stable income from a FT job (+ or - 130k/yr) and can show those #s in my last 3 returns. My FICO score is just under 750 (should be higher by EOY), and I have relatively small monthly expenses versus my monthly obligations (currently putting away about 4.5k per month after taxes and trying to get to 5k).

I would think that based on this, a lender wouldn't have a hard time financing me or in this case refinancing but I am not sure (looking to finance under 400k possibly 300k).

Like I said, I am simply considering the hard money lender route and then refinancing in order to see if I can bypass tying an extra 10% or more in the deal.

Am I missing something? Or does this seem feasible?

[Andrew Michael]

I think your overall thinking is correct in that you can use hard money to get into project that would otherwise be denied by traditional financing.  

Your plan gets a bit unrealistic and confusing when you say you do not want to put down more than 10% for an investment property. Even if you find a hard money lender who only makes you put down 10% at the onset of the deal, more than likely you will pay a high premium in points and have a high interest rate. So yes you may be putting 10% down but at what cost over the next 3-6 months as you season the investment property. Also, at the end of the day once you seek to refi out and go with a traditional lender I would assume that their criteria would still be the same in that they will require you have more than 10% equity in the property. I do see the added time in the example above being a benefit if you intend to fix up the property or add units and thereby add value/equity to the deal. Also a seasoning period will allow the rental income to be taken into consideration for some banks but keep in mind most hard money lenders do not allow the property to be occupied during the course of the loan (In MD, DC and VA anyway).

I would love for a really experienced lender to jump in as I could be mistaken or there may be some other ways around the issue that I am overlooking.  

For the most part, the more money you bring to the table and have in the deal the better your returns will be.