Difference between refinancing hard money and cash purchase

[Justin Phillip]

Hi everyone, I’m considering to use a hard money lender for the first time in a deal. Of course, the eventual plan is to refinance the home as soon as possible through a traditional mortgage, to reduce the excessive amount of costs with high interest rates from hml. The property itself does not need major work, and once it has been acquired through hml, I should be able to immediately start the refinancing process.

While I am leaning towards using hml, I have not counted out the option of paying the acquisition cost in cash myself. In further exploring this route though, the mortgage officer I’m working with mentioned that while they may be able to refi up to 90% (or maybe even all) of the balance I have borrowed from hml, if I instead choose to acquire the property with my own cash (no hml), then the max amount they are able to cash out (refi) to me is 75% of property value.

Can anyone explain to me why this is? It seems to me that regardless of whether I acquired the property with all of my own cash OR use hml, the [refinancing] traditional lender should be willing to lend me the same percentage of property value.

Thanks in advance for your advice and input!!