How to Refinance a Hard Money Loan

Refinancing a hard money loan is an option if you want to get out of debt and start over. Refinancing can help you save on interest, lower your monthly payments, and give you more financial flexibility. But before you refinance, it is important to understand the process so that you don’t end up taking on new debt. This article will take a look at what refinancing entails as well as other options for managing your hard money loan.

To learn more about how to refinance a hard money loan, read on!

How to Refinance a Hard Money Loan, how to refinance out of a hard money loan

What is a Hard Money Loan?

A hard money loan is a short-term loan that typically lasts only 6-24 months. It’s issued by private investors or institutions and secured by the property being purchased. These loans are not backed by any government agencies, so the interest rates can be much higher than for federally insured mortgages.

A hard money loan also carries with it many more restrictions on how you can use the funds, what type of financing it can be combined with, and other limitations on your ability to refinance or sell the property in question. The most common types of hard money loans are bridge loans, gap funding loans, construction lending services, acquisition financing services and fix and flip loans.

Why Refinance a Hard Money Loan?

Before you refinance, it makes sense to understand why you would want to. Some reasons for refinancing include the following:

  • You don’t have enough equity built up. If you are unable to get your hands on enough cash from the sale of the property itself, you may want to consider refinancing. This way, you may be able to take out a new loan at a lower interest rate and pay off your old one.
  • You’ve completed a rehab. If you have completed a major rehab project on the property, you may be able to refinance it for more than if it were still in poor condition. You can use refinancing as an opportunity to get rid of old loans and consolidate new ones.
  • You want lower monthly payments. Refinancing allows you to secure a new loan with better interest rates. This is especially useful if you want to pay off a high-interest loan and make lower monthly payments instead.

Recommended Reading: How to Approach a Hard Money Lender

The Process of Refinancing a Hard Money Loan

Refinancing a hard money loan can be a relatively straightforward process so long as you understand what is required. For example, if you want to refinance on your own, it’s important to know that there are several steps involved. These include:

  1. Locating new lenders. You don’t just go out and get a new loan from the first lender you find. Instead, it is important to research your options and pick out several lenders to get quotes from. This helps ensure that you are getting the best possible loan for your needs so that you can be confident in refinancing.
  2. Preparing an application. You’ll need to complete a new application for each potential lender, so keep this in mind. Make sure that everything is accurate and up to date, including your credit report, income documentation, and balance sheets. This will save you a lot of headache later.
  3. Discussing with your current lender. Many hard money lenders now offer rehab to rental loans. If you plan to keep your property as a rental, these loans are much closer to a traditional 30 year loan’s terms. Be sure to talk with your current lender abouot refinancinig options. Oftentimes, this can save on fees as well versus using a new lender.
  4. Preparing your property. Make sure your property is up to code and in good condition. You’ll likely need a new appraisal or tenants in place to get a refinance. Most lenders also require proof of work to provide a much higher value in a short time. Be sure to keep good records of work done on the property.

Pitfalls to Avoid When Refinancing Out of a Hard Money Loan

  • One of the biggest mistakes people make when refinancing a hard money loan is choosing a lender too soon. You don’t want to rush into this or you may end up paying higher fees to your current lender. It’s important to understand what you are looking for in a loan before even contacting anyone.
  • You also need to fully understand your current loan’s terms. Many hard money lenders have prepayment penalties or garaunteed interest payments for specific time periods. These could be as long as 6-12 months. Be sure to double check if you’ll be on the hook for additional payments even if you refinance out of the loan early.
  • Don’t overestimate the amount of money you’ll receive on your refinance. Many new investors overshoot theirr after repair value or the amount they’ll receive from the refinance. If this happens, you may not be able to repay your currrent lender or your rehab costs. On new appraisals within 1 year of purchase, many banks won’t give full market value, or they’ll only offer lower LTVs like 60-70%.
  • How to Refinance a Hard Money Loan, how to refinance out of a hard money loan

Key Takeaways – How to Refinance a Hard Money Loan

In order to refinance a hard money loan, you need to find new lenders and understand your current terms. You also want to prepare a detailed application for each potential lender. This is so they know all of the important information about your property.

One thing you don’t want to do is rush into refinancing out of an old loan without fully understanding what’s required. You also need to consider other financing options.

In this article, we’ve discussed topics like when it may be an appropriate time to refinance, how the process works from start-to-finish, pitfalls that can come up during the process and more. We hope these tips have helped answer some questions on how to refinance a hard money loan.