Refinance Hard Money Loan

[Rudy Manna]

I am buying a fixer with hard cash loan. HML is giving me 90% of purchase price and rehab cost as well. When I refinance with a bank in few month later will the bank lend me 80% of purchase price or it can be 80% of ARV (expect ARV to be 30% higher from purchase price). In other words will the bank refinance the entire HML in this scenario, or just a portion of buying price.

Thanks in advance.

[Albert Bui]

HI Stephanie,

I think you may have mixed a bunch of guidelines together so I will keep them separate:

- rate/term refinance as opposed to a cash out refinance is designed only to payoff the current outstanding lien the borrower will get nothing over $2,000 or 2% of the loan amount whichever is less. So in the plain vanilla sense you will not get back your rehab cost or the down payment you put down when you purchased the property.  There are ways to structure the hard/private money in order to get back your down payment and rehab costs but it must be planned and implemented upfront when using a rate term refinance. The other way is to do a cash out refinance but as you know that requires 6 months from date of acquisition while R/T refinance does not (1 day+).

- the definition of rate term refinance has nothing to do with the "purchase price." rate and term refinances focus on market value and the LTV's are not restricted to 70% the 70% is a guideline out of the DFE or delayed financing exception but thats completely different DFE is when you buy cash and you're trying to recoop your money within 6 months.

- to clarify if you bought the property with debt/financing and not cash then no you cannot cash out refinance within 6 months on conventional financing. It depends on how you bought it. Your question was that you cannot cash out under 6 months but it depends on the context under which you purchased (cash or financing or etc?).

I dont know what your situation may be but if you have sufficient comps and the appraisal comes in at the value you need or higher then you can refinance as mentioned above when doing a rate/term refinance. Rate/term refinances do not require title seasoning like a cash out refinance does, but rate/term refinances also assume you're using financing to purchase the property. A rate/term refinance is a refinance where you're basically only changing the rate or a term of your current outstanding debt. There are rules around it such as mentioned above. 

You can structure a R/T refinance to get back your rehab costs and down payment if you know how to structure the loan  to fit within the lending guidelines and the property sufficiently appraises.