Skip to content
×
Try PRO Free Today!
BiggerPockets Pro offers you a comprehensive suite of tools and resources
Market and Deal Finder Tools
Deal Analysis Calculators
Property Management Software
Exclusive discounts to Home Depot, RentRedi, and more
$0
7 days free
$828/yr or $69/mo when billed monthly.
$390/yr or $32.5/mo when billed annually.
7 days free. Cancel anytime.
Already a Pro Member? Sign in here
Rehabbing & House Flipping
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated almost 7 years ago on . Most recent reply

User Stats

341
Posts
146
Votes
Nicholas Weckstein
  • Real Estate Agent
  • Warrior Run, PA
146
Votes |
341
Posts

Hard money loan shows up in your dti

Nicholas Weckstein
  • Real Estate Agent
  • Warrior Run, PA
Posted
If you borrow from a hard money lender. Use the funds to buy and rehab a multi family property. Rent it out and then approach a bank for a cash out refi to pay the HML, won’t the loan that you have with HML show up and effect your DTI. Which could mess up your refi and kill the whole strategy?

Most Popular Reply

User Stats

9,934
Posts
10,788
Votes
Chris Mason
  • Lender
  • California
10,788
Votes |
9,934
Posts
Chris Mason
  • Lender
  • California
ModeratorReplied
Originally posted by @Nicholas Weckstein:

if thats the case then how could one expect to refinance out of a hard money loan? 

Debts being paid off with cash out refinance proceeds are not included in your DTI. When you refinance, you typically pay off the existing mortgage and replace it with a new one.

Example math assuming a fake scenario where someone's only debt is the one property in a HML.

HML payment on Property A: $5000

Income $8000

Current DTI: $5k/$8k = 62.5%

Payment after refinance on Property A: $3000

DTI calculated for that refinance: 37.5%

Where you can get jammed up is if you want to purchase or refinance Property B before Property A is out of hard money. Flippers who have 3 flips in the works all in hard money, and want to buy one using conventional financing are typically SOL, unfortunately. But if your plate only has 1 thing at a time on it, it's a non issue.

Good luck!

  • Chris Mason
  • User Stats

    9,365
    Posts
    6,551
    Votes
    John Thedford#5 Wholesaling Contributor
    • Real Estate Broker
    • Naples, FL
    6,551
    Votes |
    9,365
    Posts
    John Thedford#5 Wholesaling Contributor
    • Real Estate Broker
    • Naples, FL
    Replied

    It may not show up on your credit report BUT you must report it. Hiding material facts is bank fraud. 

    User Stats

    1,251
    Posts
    261
    Votes
    Bob Green
    • Lender
    • Mokena, IL
    261
    Votes |
    1,251
    Posts
    Bob Green
    • Lender
    • Mokena, IL
    Replied

    My suggestion is to take a hard money loan out in the name of a LLC, therefore loan will not be reported to credit bureau.

    RentRedi logo
    RentRedi
    |
    Sponsored
    RentRedi: Your All-in-One Property Management Solution—FREE RentRedi offers 2-day funding and 24/7 live chat. It’s in your BiggerPockets PRO membership for free

    User Stats

    1,251
    Posts
    261
    Votes
    Bob Green
    • Lender
    • Mokena, IL
    261
    Votes |
    1,251
    Posts
    Bob Green
    • Lender
    • Mokena, IL
    Replied

    And YES John is correct.

    User Stats

    9,365
    Posts
    6,551
    Votes
    John Thedford#5 Wholesaling Contributor
    • Real Estate Broker
    • Naples, FL
    6,551
    Votes |
    9,365
    Posts
    John Thedford#5 Wholesaling Contributor
    • Real Estate Broker
    • Naples, FL
    Replied
    Originally posted by @Bob Green:

    My suggestion is to take a hard money loan out in the name of a LLC, therefore loan will not be reported to credit bureau.

     See my post above. If the borrower owes the money it MUST be reported legally.

    User Stats

    1,251
    Posts
    261
    Votes
    Bob Green
    • Lender
    • Mokena, IL
    261
    Votes |
    1,251
    Posts
    Bob Green
    • Lender
    • Mokena, IL
    Replied

    Yes John I agree 100%

    User Stats

    341
    Posts
    146
    Votes
    Nicholas Weckstein
    • Real Estate Agent
    • Warrior Run, PA
    146
    Votes |
    341
    Posts
    Nicholas Weckstein
    • Real Estate Agent
    • Warrior Run, PA
    Replied

    if thats the case then how could one expect to refinance out of a hard money loan? 

    User Stats

    9,934
    Posts
    10,788
    Votes
    Chris Mason
    • Lender
    • California
    10,788
    Votes |
    9,934
    Posts
    Chris Mason
    • Lender
    • California
    ModeratorReplied
    Originally posted by @Nicholas Weckstein:

    if thats the case then how could one expect to refinance out of a hard money loan? 

    Debts being paid off with cash out refinance proceeds are not included in your DTI. When you refinance, you typically pay off the existing mortgage and replace it with a new one.

    Example math assuming a fake scenario where someone's only debt is the one property in a HML.

    HML payment on Property A: $5000

    Income $8000

    Current DTI: $5k/$8k = 62.5%

    Payment after refinance on Property A: $3000

    DTI calculated for that refinance: 37.5%

    Where you can get jammed up is if you want to purchase or refinance Property B before Property A is out of hard money. Flippers who have 3 flips in the works all in hard money, and want to buy one using conventional financing are typically SOL, unfortunately. But if your plate only has 1 thing at a time on it, it's a non issue.

    Good luck!

  • Chris Mason
  • User Stats

    341
    Posts
    146
    Votes
    Nicholas Weckstein
    • Real Estate Agent
    • Warrior Run, PA
    146
    Votes |
    341
    Posts
    Nicholas Weckstein
    • Real Estate Agent
    • Warrior Run, PA
    Replied

    Chris Mason thank you ! That’s what I was missing.

    So when I’m refinancing I would tell them I’m using the money to pay off that loan. Gotcha.
    1 at a time works for me !