Can you refinance a hard money loan? With New Funding Resources, you bet you can!
Though our primary business is helping our borrowers to purchase investment properties in the DMV area, a portion of our business comes from refinancing. We refinance hard money loans issued by other hard money lenders, free-and-clear properties and, when it makes sense, mortgage loans originated by conventional lenders. The most common reason for hard money refinancing is to get more time and money to complete the planned renovation and, subsequently, maximize the profits.
How do we underwrite our hard money loan refinance?
As with all of our hard money loans, our underwriting criteria are pretty streamlined. At New Funding Resources, we don’t verify your income and are not credit score-driven. If there is sufficient equity in your property, we will do our best to quickly approve your refinance. To speed the process along, make sure you have the following information ready:
- Some pictures of the property documents the progress you’ve made on your renovation so far
- The approximate payoff amount on the hard money loan you’re refinancing including your remaining escrow balanace
- The estimated ARV at the time of transaction
- The approximate budget your need to complete your rehab
- Check out our hard money loan calculator to see whether you have enough equity to refinance and how much in cash you can receive. Instead of the purchase price, enter your anticpicated payoff amount.
Have a hard money loan that needs to be refinanced? We offer both short-term and long-term financing options. Call us today at 240-436-2340 for details or fill out our pre-approval form.
Five Common Reasons for Hard Money Loan Refinance
Your Current Hard Money Loan is Due
Most of our refinances are refinances of other hard money loans. What are the reasons to refinance one hard money loan into another? The most obvious answer is when your loan is coming due, but you are not quite ready to sell it. Once your loan is due, your current lender can declare it to be in default and start charging you a default rate. A default rate on a hard money loan can easily exceed 20% taking a considerable chunk out of your profits. Check your closing documents and especially the Promissary Note to find out exactly what rate you will be charged once your loan matures. One sure way to resolve the situation is to find another lender who can pay off your obligations to the original lender, remove their lien of the title, and instead secure their lien.
You Need More Money to Finish Rehab
Some rehabbers don’t just run out of time to complete your rehab – they run out of money. A new hard money lender might be able to tap into additional equity in the property, refinancing your existing hard money loan and providing the needed funds to finish up the renovations.
Over the last ten years, the Washington, DC-area real estate appreciated over 163% placing it in the top 10% nationally. That means that on average, a DMV property home increases in value by more than 16% a year. Some rehabbers have been able to take advantage of these tailwinds to get extra funds to complete their projects.
As we all know, “the past performance is not a predictor of the future results.” Such appreciation rates might not and probably will not be sustainable in the future. While as a lender will use every ounce of equity to provide you as much leverage as possible, the best practice is not to rely on appreciation to get extra funds for renovations (or evaluate your profit potential). Instead, the key is to move fast and manage the rehab project as efficiently as possible.
You Have Another Business or Investment Opportunity
Another reason why a borrower might want to refinance a hard money loan is to get the funds to capture other business opportunities. For example, consider this scenario. The renovations are completed and the home is on the market but the money is still trapped there until it is sold. You just found an amazing opportunity to buy a home in the DC area for well under its market price but need to move fast. You technically have money but you are not liquid.
Since 2006, we have helped hundreds of DMV real estate investors to gain the liquidity they need to keep them nimble. If you have equity in an existing property, we will find a way to tap into it. One way to do it is to refinance your current loan into a short-term (or a micro-term) loan commonly referred to as hard money bridge loans. Our hard money bridge loans can be secured against a single property or, when appropriate, can involve multiple properties at the same time.
You Purchased a Property in Cash and Need Money to Rehab It
Perhaps you’re one of those well-heeled investors who can actually purchase a home listed as “cash-only” fully in cash. Good for you! I am sure you’ve worked hard to get to this position. The benefits of being an all-cash buyer are numerous, with speed and lower costs of doing business being just two of them. However, there is one definite problem with cash: sooner or later it tends to run out. To keep buying, to keep building, to keep earning profits you need leverage. And leverage is what our hard money refinance loans provide you with.
Supposed you purchased a property for $250,000 and paid for it in cash. You were planning to pay for rehab as well but had to spend this money pursuing other opportunities. Our loan will provide you with the cash you need for renovation regardless of your credit score or your income.
You are a lucky heir looking to maximize that wealth
If you’ve inherited a property, sometimes it pays off to renovate it before listing it on the market. However, your relatives whose property you’ve inherited might have not bequeathed you much cash. The solution? A hard money loan to provide the renovation funds need. Though on their surface such cases might not look like a refinance (there is no loan on the property), they are definitely not a purchase either, since there are no changes to the ownership.
Unlike many other private lenders, we have no minimum loan amount, so even if you’re looking for a loan of just $50,000, we can help. In the scenarios when a property is free and clear, we can often roll your loan payments into a loan to help avoid the future hassle of paying monthly.
Mistake to Avoid When Refinancing Your Private Hard Money Loan
Don’t stop paying your current lender
Make sure you’re continuing to pay your current lender. First, you don’t want to incur any late fees or default interest rates. Secondly, you will have a much higher chance to refinance your hard money loan if you are keeping up with the payments. After all, all lenders including your new one prefer well-performing loans and borrowers with a track record of on-time payments.
Communicate with your current lender to avoid default rates
Do not hesitate to tell your current lender that you’re planning to refinance with another hard money lender. Trust me, their feelings would not be hurt. The lenders want their money back regardless of your exit strategy. In addition, another reason to share your refinancing plans with your current lender is that they might be able to extend your terms by a couple of months. If this is possible, you might be able to save quite a bit of money on refinancing costs. Again, communication is the key. An honest upfront discussion between you and your lender is one sure way to come up with a solution that meets everyone’s needs.
Maintain your property insurance
Just like it’s important to pay your current lender, it’s absolutely essential that you continue to meet your other obligations as a property owner. Paying your insurance (and your property taxes) is a part of those obligations. By keeping yourself current, you are demonstrating that you’re a responsible and trustworthy individual – exactly what lenders are looking for.
Long-Term Option: Refinancing Your Current Hard Money Loan Into a Low- and Fixed-Rate Loan
Often enough a borrower is not looking for another hard money loan to refinance into. Once your rehab is complete and, if your strategy is to hold your property in your rental portfolio, it’s time to refinance your hard money loan into a loan that offers longer-term and lower interest rates. Whether you’re refinancing a loan originated by New Funding Resources or by any other private money lender, we can help you lower your costs and generate more rental income. Our long-term refinance loans offer fixed 30-year term rates starting at 5.99% and are based on your rental property’s cash flow instead of your personal income.