Can/How do you refinance to 30 years after Hard Money Lender ?

Question

Hi!,

Most of HML doesn't have prepayment penalty , does that mean i can refinance to a traditional loan after all repairs are done ? ( within few months or so) .

Would love to hear your opinions . Thank you so much

Andrew Postell · Answer

@Hao Dinh thanks for posting about this. Bigger Pockets talks about this strategy as the BRRR strategy.  Buy, Rehab, Refinance, Rent....or something like that.  But essentially it's what most "buy and hold" type of investors do when they purchase a property.  Now the tricky thing is finding a lender that is accustom to refinancing out of hard money lenders.  It sounds strange but investment properties foreclose at a higher rate than primary homes.  So some banks put extra restrictions on investment property loans.....and some just don't do them at all!  So when you are interviewing lenders here's what to ask:

Questions for Lenders

• When do you start using rental income to help me qualify? (the      answer needs to be immediately)
• How long do you need me to be on title to refinance? (this is      important if you do need a short term loan to purchase then refinance out      - and the answer should be 1 day...very important that it is 1 day on      title is all that is needed to refinance) @Tarik Turner there are absolutely lenders out there who can follow this type of a "no seasoning" requirement.  
• What is my minimum down payment required? (not so important but if      they only require 15% down on a single family home that is usually a      good sign that you are working with a flexible lender)
• Can I change title to my LLC?
• Do you sell your mortgages?
• What is your loan minimum?
• Can you explain to me what your reserve requirements are?

If you have any other questions feel free to tag me.  @Andy Webb thanks for the tag!

Ryan Blake · Answer

@Hao Dinh Yes, this is exactly how it works. If you are buying to keep as a rental or to sell under owner financing, you will want to work with a bank that does not require a seasoning period. You will find this mostly through mortgage banks and small banks. Most hard money lenders have relationships with these kinds of banks and can introduce them to you.

I work with a hard money lender out of Tarrant County.

Andrew Syrios · Answer

As long as you can find a bank to refinance the property, the answer is yes. Indeed, this is what hard money lenders want you to do.

Andrew Postell · Answer

@Hao Dinh there is an FHA renovation loan that is available for you.  And the same for Fannie Mae as well.  As mentioned previously, a hard money lender will not likely lend to you if you are buying a primary home.  So if you are targeting a primary home you actually would have some pretty good options as long as you can close in about 30 days.  Feel free to Private Message me on this and we can just talk it through.  Thanks!

Ryan Blake · Answer

@Hao Dinh I think you mean your primary residence in the question you were asking Andrew. I don't know of any HMLs that will lend on an owner occupied property. This is due to extra requirements under Dodd Frank regulations. Good news is that FHA offers some great options that can wrap in rehab costs with a very low down payment (3.5%). Hard money is really only best for investments where you have room to cover the expenses and still make a nice profit for yourself.

Ryan Blake · Answer

@Hao Dinh Seasoning is the period of time that must pass from a prior loan or appraisal before a bank will allow a refi or new loan on a higher valuation of the property. Many large institutions are at 12 - 24 months. That is why you will need to work with a smaller lender. I can make introductions for you.

Andy Webb · Answer

I should add that we typically are doing a rate-and-term refi, not a cash-out refi.  The seasoning requirements are usually in place if you are pulling out cash.  We just move from the short-term, high-interest HM loan into the 30-year one, so no seasoning required.

Andy Webb · Answer

@Hao Dinh - that is exactly what we do: buy with HM, fix up and rent the place, then refi into 30-year FNMA loans.  There are plenty of mortgage brokers out there that will shop your loan to multiple investors/lenders to get you the best deal and the seasoning will not be an issue.

Talk to @Andrew Postell - he is very active and can help you with the back-end loan.

Andy

Hao Dinh · Answer

@Ryan Blake Thank you Ryan, I was thinking if the number is right then i could use hard money to buy a distress and close quicker than using FHA. But i guess i have to look into other options and see what best for my situation . Thanks again Ryan :)

Grayson Wester · Answer

@Hao Dinh there are a few different ways to approach it, but like @Tarik Turner said, keep an eye out for the seasoning period required by the new lender. I'd also encourage you to double check on pre-payment penalties as well. I have a client who got charged $3000 a few weeks ago for paying off a loan early with their former hard money lender.

Another thing to consider is a 30 year loan through a hard money lender. These products are a great fit for buy and hold investors and offer favorable terms and underwriting processes compared to traditional Fannie Mae and Freddie Mac loans - also helps you to get around maxing out your 8-10 loan limit with the government loans.

Can/How do you refinance to 30 years after Hard Money Lender ?

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