How does refinancing work?

Question

I need help understanding the correct way to do this correctly and if the numbers will even make sense. Here is the scenario:

I own my primary residence free and clear , great credit and can qualify for just about any loan. I don't want to use my equity but I want to take out a loan for a 220k duplex with an ARV of 315k in an area that is going up. However, the duplex needs about 25k in repairs. I was told that I would have to take out a hard money loan to pay for the repairs and then refinance with the bank.  The property will generate about 1325 per month from rent. The property is in a low crime area and in a very good neighborhood. How does refinancing work? Im assuming I just apply for the loan use the money to get it fixed up ASAP, rent it out immediately and use that money to pay back the hard money. Is there a chance of me not being able to refinance the property and what would happen in that case?

Aryelle Collins · Answer

@Korie Apgar 1325 is the combined total income

John Leavelle · Answer

Howdy @Aryelle Collins

You say you do not want to use your own equity.  Then do you have the cash saved for investing (Down payment, Closing and Holding costs, and the Rehab)?  You will need cash to do all or some of these.  Yes, a Hard Money Lender could help finance part of it.  However, there is a less costly option you should consider.  You should consider using a Home Equity Line of Credit (HELOC).  It would be cheaper than using a HML.  Just a thought.

Korie Apgar · Answer

@Aryelle Collins

I have a bigger question for you.  When you say the property will bring in $1325 month is this the rent on each unit or combined total?

Jeff Dulla · Answer

Without knowing the exact details, I would say no. A minor leak will not stop you. If you are talking about very noticeable, water gushing out and ruining the floors, then yes, that could possibly.

As for the flooring, is it intact?

Unless you know the exact condition of these things, a lot of it is hypothetical. But nothing you have said thus far will stop you from getting normal, conventional financing. Really the first step is finding a lender you trust, talking through these details more thoroughly and ultimately, getting an appraisal done. The appraiser will remark on these items you are talking about and if they are not in really bad shape, the loan would go through normally.

Jeff Dulla · Answer

Aryelle - what are the repairs for? If they are minor, you shouldn't need a hard money loan. There are a lot of people that seem to be overly dependent on "hard money loans" and I think it is based off a lot of misinformation on this website as well as others.

If you can, please tell me exactly what needs to be fixed.