Can I turn a hard money loan into a traditional loan?

Question

I am rehabbing and flipping a property in Chicago 3br/3ba. I took out a hard money loan on the project but unfortunately the house needs alot more work than I originally intended and I don't think I'll make a reasonable profit by selling it. I'm not happy with some of the contractors work. Can I convert my hard money loan into a traditional loan with a mortgage company so I can try to turn it into a rental instead? Do most hard company officers frown upon this?

Scott E. · Answer

I have a lender who will do a conversion from hard money fix & flip financing to longer term rental financing at the end. But the loan needs to be set up that way from day 1.

As others have suggested your best bet will be to find a lender who can refinance you out of this loan.

Eliott Elias · Answer

You can do something called a rate & term that literally switches the interest rate and loan length. It's easier for lenders

Tom S. · Answer

@Leanne Sorg Most HML's want you to sell or refinance the loan, since HML is shorter term only. In fact, they generally want you to have an exit plan up front.

Now can you "convert" your existing HML into a different loan, mostly likely not. You'll have to refinance so the HML gets paid.

As a future note, try working with smaller local banks and their commercial lending department. I've done a number of loans that were similar to HML (lending on properties that needed major rehab) and then it converted into a regular mortgage once the rehab was complete. So no refinance, 2nd set of closing costs, etc. Plus just a standard 5 - 6% rate (a few years ago) for the whole term.

Good luck!

Erik Estrada · Answer

It varies from lender to lender. If it is still in rehab and the appraiser notes that it is not in livable condition then you will run into issues.

But generally yes, you can refi into a fixed DSCR loan if you plan to keep it as a rental.

William Harvey · Answer

I don't see why they would care. As long as they get their principal + points/interest back then it shouldn't matter if it is from a sale or refi. Usually the issue comes into play when you do the opposite of this and get a long-term (permanent) loan and then end up selling or refinancing shortly after the loan was originated. A lot of commercial/bank loans come with prepayment penalties to prevent this from happening, but you shouldn't have that with your hard money loan.

Ben V. · Answer

Hey Leanne,

Yeah you can refi into a more manageable loan. Consider first that it also comes with closing costs.

Jesse Holsapple · Answer

In my experience, as long as the loan can be paid off they won't care. I've had people do Ground up construction then refinance at the end of their build into a long term owner occupied loan.

Can I turn a hard money loan into a traditional loan?

Can I turn a hard money loan into a traditional loan?

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