30 YR Fixed Commercial Loan To Take Out A Hard Money Explained

[Nasir El Ameer]

Hello Everyone,

Just wanted to write this post to uncover an option to take out a hard money loan that won't offer an extension or you decide to keep the flip and turn into a buy and hold.

Not all hard money lenders offer extensions on their loans and if they do they will charge an extension fee in the form of a point on the loan amount

That's not a bad thing its just the way the business works.

But if you have a flip and you want to keep it and rent it then you need to take out the hard money loan.  

So to avoid the extension fee you would need to decide if you want to refinance or do a refinance and cashout the money you put into the deal plus get the ARV of the property.

You have two Options to do this:

If you go to the traditional route and are looking for a GSE loan (fannie & freddie) you will have to have owned the property on title for 6 months minimum to do a refi cashout of the ARV.

If your looking for a refinance and no cash out then you do not have to be on title for 6 months. By simply refinancing you may get your initial cost basis in the deal back if the values support it and the lender offers 80% LTV.

The problem with either of these two options is that for the (GSE loans) ,you have to own the property for certain amount of time and not all loans will close with a GSE Loan after the 6 month mark therefore costing your more money in interest and holding costs with the hard money loan. 

Also if the property is in a LLC it opens up another can of worms because the lender may not loan to LLC's and if they do they may require the LLC to be on title for 2 years plus show tax returns and land lord experience.

The other option with just refinancing is doable but it doesn't offer you cashout of the ARV. Furthermore if its in a LLC a conventional lender may not be able to offer you a take out loan.

Last but not least the aforementioned lenders will ask for full docs such as tax returns, w2 income, DITI etc which can be a hassle at times and delay the transaction which increases the holding costs.

The solution:

A commercial loan from an alternative lender does not have seasoning requirements and they can go to 80% LTV on a cashout.

They have easy underwriting so tax returns, w2 income, and DITI requirements are not needed. And they can close in a LLC.

The cool thing about the commercial loan is that it can be fixed for 30 years, which traditional lenders do not offer all the time for refi cashouts. 

Plus they do not require land lord experience or a traditional tenant in property as long as the DSCR is over 1.00 then you are good to go.

What this means is that if you plan to use the home as an airbnb or as a vacation home then you are still eligible to get a refi cashout.  

All in all you have options to do a take out for a hard money loan but if you want cashout and a 30 yr fixed loan, then traditional sources may not be ideal.