Can I use a hard money loan to make a cash offer and then take out a mortgage after?

Question

Friend of mine is trying to purchase a home on Long Island, New York. He is overbidding by an insane amount and still losing properties, usually to cash offers.

I haven't done research into this for personal real estate purchases so looking for some pros/cons here from my idea.

Can you take out a hard money loan to make a cash offer on a personal home. Then once you close on the house take out a standard 30 year mortgage to pay off the hard money loan? Obviously you'll be paying the interest on that hard money loan, but aside from that, does this work?

Joe S. · Answer

Glanced through the replies and it appears that the lenders that commented did not catch that he said Hard money on a personal residence. Without speaking to that, they are not answering his question.

Bill B. · Answer

1) Be careful. He may be losing out to cash offers but they may be just as high as his offers. Sellers aren’t going to consistently take 10% less for cash. Most buyers want top dollar for their property. So you may pay just as much paying cash. Even more after you consider the hard money costs.

2) the hard money route is going to cost you at least a few % of the loan value so it’s basically the same as just raising your offer a few percent even higher than “overbidding by an insane amount”.

3) the seller’s might be taking cash offers because they know they won’t appraise for the sale price. This means if your friend offers $500k in “cash” for a property the appraisers think is worth $400k. When he goes to refinance they’ll only borrow him $360k. (80% of the value.). So make sure your friend has $140k in real cash on hand or he could be stuck in the hard money loan for a year until they call it due. Then he might just lose the property.

There are other ways around this. Your friend could offer a very large EMD that shows he’s serious and has the money to close. (10-20%) this doesn’t cost anything and helps them stand out. They could offer a decent sized non-refundable EMD if they are POSITIVE they want that house in its current condition. This means it costs money to walk away but incentivizes the seller to take your offer. Knowing you will close or they will get “free money”.

Anderson S. · Answer

Most lenders are not going to give money on a personal home

Wayne Brooks · Answer

I was waiting for someone to point this out as I read the replies.most HML’s will require the buyer to use an LLC so it Can’t be a primary residence, which they can not legally lend on. So, then you’d have change title to your personal name to refi using a primary residence loan, so you’d have to find a lender, FHA is out, which would let you Simultaneously transfer title to your name and refi at the same time…might need some luck on that one.

Also it is Not a cash offer, which means you Already have the cash when you offer…..which is Why people prefer a truly cash offer, since there is No chance of the sale falling through due to the buyer being unable to get the loan (for their “cash” offer).

Mike Dymski · Answer

A hard money loan is still a loan/financing, not a cash offer.

Jack Tulloch · Answer

Hey Vincent. Yes, you can use a bridge/hard money loan to secure a property and then immediatley refinance into a 30-year loan. Some lenders may have prepay penalties on the bridge loans (although this is pretty uncommon from what I undertand) so be sure to ask that upfront.

Damon Bodine · Answer

Hey Vincent be careful as to where and how they get the hard money loan.   A lot of them have pre payment penalties, significant points, of course interest only etc.     There also may be seasoning requirements based on the loan program they refi into.  Also its hard to get a hard money loan on a personal residence.

Alternatively there are lenders that will offer convertible bridge loans that convert into 30 year fixed.  Its essentially the same thing but potentially a better pricing structure.   Just take in mind all of these strategies are risky.  For me it always comes down to their team.  What is the agent doing proactively for them?   Are they getting them in front of off market or pre market opportunities?  Is there lender making calls and available to talk if someone has a question about their offer? .  People have to really put in the extra work for their clients right now in a low inventory environment.

Mohammed Rahman · Answer

Hey @Vincent Donato - bit late to this post, but the short answer is yes.

The longer answer is, what kind of properties is he looking at? If he's looking at fixer upper homes, then it may make sense.

However - if he's looking at somewhat (or fully) retail ready homes for end buyers, then it may not make sense. NOT because it won't strengthen his offer, but because he's probably not seeing the full picture.

I'm a broker based out in NYC & LI and have worked with a lot of buyers over the years. In most cases buyers that are losing out their offers (especially if its above ask) are primarily not "presenting" their offers well to the counterparty (whether that's because they're not doing a good job themselves or their broker isn't is another convo).

That being said - even an offer with a mortgage can be presented in a way to bolster its effectiveness, especially if you're aggressive with the closing timeline.

For example: Making an offer with a mortgage, but waiving the mortgage contingency (which we can do if the bank is able to underwrite/approve your friend even before we make offers).

There are multiple ways to go about it, if you or your friend are interested in chatting, please DM me. You can simply Google or lookup ClosedByMo on social media to read through my reviews.

Ko Kashiwagi · Answer

HI Vincent,

When you say "personal home", do you mean a primary residence? Most hard money financing is for investment properties, so you'd want to make sure your friend's hard money lender can do this for a primary if that's the case.

You can do delayed financing right after purchasing with cash or a bridge financing, which would allow you to get a 30 year financing right after closing

Slade S. · Answer

Making a cash offer doesn't mean you can't finance the purchase with a conventional loan. It just means your waiving the mortgage contingency.

Basically all purchases are "cash" offers but the seller gets a check at closing for the purchase price. Does the seller really care who writes the check (you or the lender)?

Can I use a hard money loan to make a cash offer and then take out a mortgage after?

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