Closeup of woman at table with scattered papers, calculator, cup of tea, and laptop considering options on whether or not she can refinance her hard money loan.

When people want to grow wealth in the real estate industry, hard money loans can be a great option for those who want to quickly build their real estate portfolios with a fraction of the cash. They are excellent finance options for fix and flip projects or any project with a short turnaround. One of the reasons these types of loans are so appealing to investors is that the qualification requirements are not as stringent when it comes to credit scores or employment history. Hard money lenders typically have their own requirements that involve a significant down payment or property equity for collateral.The most important thing to remember about hard money loans is that they are short-term loans, so investors should have an exit strategy in mind (how they will pay off the loan) before even securing funds from a lender. Today we discuss different types of strategies that buyers should consider, including whether or not you can (or should) refinance a hard money loan.

Benefits of Hard Money Loans

In a competitive real estate market, cash is king. What many investors have learned throughout the years, though, is that cash is not always necessary. 

That’s where hard money loans come in. 

One of the many benefits of hard money loans is that they allow investors who do not have “cash in hand” to fund a project and compete with cash buyers. Another advantage of these types of loans is that they can be approved and financed relatively quickly compared to traditional loans and lenders. When a borrower applies, they can potentially be approved and have funding for their project in as little as 3-5 days. Although a hard money loan is an excellent option with many advantages, one of the biggest things to keep in mind is that they are short-term (usually 12-24 months, depending on the initial agreement). If a borrower plans to fix a property and then sell it, a lump sum is expected in return and is used to pay off the hard money loan. If the borrower chooses a different exit strategy, they need to have other options available such as refinancing.

Why Refinance?

Can you refinance a hard money loan if you want a new exit strategy? Let’s say a borrower planned on selling the property to make a profit and pay back their loan that way; why would they even consider other exit options? Well, there are plenty of reasons that a borrower might want to go down a different path rather than sell a property. For example, perhaps the market is volatile, and they decide they want to keep the renovated property for themselves, they may look into refinancing options. Other times the investor may decide that they want to hold on to the property and convert it into a rental property to build a passive or monthly income. If they choose to keep the renovated property as a rental, they would have to refinance it and pay back the initial hard money loan. This process is not uncommon and is actually the concept behind the BRRRR method. If you haven’t heard of the BRRRR method, it is an acronym for a real estate investment strategy that stands for Buy. Rehab. Rent. Refinance. Repeat. This method takes the best benefits from other investment strategies such as house flipping and rental properties and combines them into one real estate investment technique.

Refinancing A Hard Money Loan

So let’s go back to the main question, can you refinance a hard money loan? The short answer is yes, but there are many things to know and understand before starting the process. For the most part, refinancing a hard money loan is similar to refinancing any type of mortgage, but it may not be as straightforward because you must pay attention to your hard money loan terms and conditions. 

Once you decide to refinance, make sure you do your research and talk with your hard money lender, they may be able to give you advice on options. Some lenders, such as HouseMax Funding, even offer long-term rental loan options, so you can even discuss your available options with the original lender. If you refinance with a bank, you will need to do a cash-out refinance so you can pay off your original hard money loan. Each lender might have different requirements or qualifications, so it’s critical that you do your research. Be sure to check on the required criteria because you will need to qualify – good credit, employment history, equity in the home, etc. – for this type of loan and find a lender who offers cash-out refinance options. Another thing to keep in mind is to include costs associated with appraisals, closing costs, or any additional fees that may come from the refinance of your property.

The bottom line is that yes, you can refinance a hard money loan, and doing so might even be the best option. Just remember to do your research and have an exit strategy in mind. If you have any questions about hard money loans or rental loans, do not hesitate to reach out to the real estate experts at HouseMax Funding.