Hard money loan lenders are mom-traditional money lenders who are considered much like pawnbrokers or private lenders in modern society. Wondering how to refinance a hard money loan? This article got you covered.
Hard loans pop in to save an investor whenever they are about to close a deal but don’t have the required amount of cash at the moment to get the transaction done.
Rather than looking at the borrower’s credit score as well as loan history, hard money lenders will lend you cash depending on the value of your collateral item at hand i.e. tangible property or asset. In this blog, we are going to look deeply into hard money loans and how to refinance a hard money loan.
Borrowers with poor credit and other problems can be offered a short-term hard money loan for a single or two years until they are authorized for traditional financing. Hard money loans have always been a solution for homeowners when their lenders are about to foreclose.
It lets borrowers pay the lenders using hard money refinancing to give homeowners enough additional time to sell the asset or fix their credit with the lender to obtain long-term loans and financing.
Here are a few considerations an investor should make whenever in need of refinancing a hard money loan:
Most Harmonious Lenders Require Long-term Seasoning to Refinance
Typically, loan lending has been all about trustworthy levels between the lender and the borrower. Therefore, investors redirect their capital under better terms. Subsequent loan borrowing and payment will make you qualify for larger and long-term loans as well.
Note that some lenders won’t use a new assessment for the borrower’s property. This should be a red-light for homeowners who are renovating their assets.
During the last stages of a hard money loan, an investor should make sure that their renovations are or are almost done to make sure they get enough time to look around for the appropriate refinance program.
Achieve a Good Credit Status for Better Terms
Many investors get to achieve a high credit score due to credit consciousness which gives them better credit terms thus high credit utilization.
Team up with another lender who you can count on as a trustworthy financial partner to help you maintain and even improve the property’s financial status.
How to Refinance a Hard Money Loan
Step 1
Look-see and come up with a list of all private money lenders in your location. All private lenders are known to restrict their hard money lending activity by their local geographical area since all their money lending decisions are usually dependent on their boldness with their local house and real estate market.
To find any hard money lenders around your place, you are recommended to look for one traditional lender for referrals or try finding one on the internet.
Step 2
Research and understand each lender to learn about their variant loan terms, fees, and application procedures. Note that the interest charged and points offered will be higher compared to traditional loans.
Therefore, take your time to go through the list keenly to select the lender with the most favorable terms. Check every lender’s reputation to make sure no surprises come your way.
Step 3
Make sure your loan documentation is perfect to provide enough proof of value for your house. Hard money lenders completely rely on the LTV (Loan-to-value) ratio of the property an investor is refinancing to make a decision.
Typically, an investor is most likely to obtain hard money if they have adequate equity in their house. Therefore, bundle up proof of the value of your property to convince the lender that you will be able to make your loan repayments.
Step 4
Make your hard money loan application. Download the application form from your lender’s website or make a direct call to their office to initiate your application process. Most hard money loan applications are known to be brief and time-saving to let the investor access the loan funds as soon as possible i.e. within the first seven days.
Step 5
Remember to file all your loan application documents, make copies, and keep the duplicates with the lender. Once the hard money loan has been approved, use the revenue to repay the initial loan on your property. The new granted loan will be your primary mortgage.
Step 6
Work towards obtaining long-term financing since the hard loan money is just a bridge loan to get you on-board. Repay the hard money loan or else you’ll be forced to sell your house. Carrying the loan for more than a year or two will mean high-interest rates that might be overwhelming for you.
During this period, one should work towards clearing any deficits on their bank account that may have prevented them from getting the traditional loan. Either way, you can sell off the property, pay the hard loan money, and dance away with your equity.
Doing a mortgage refinance helps an investor pay off the loans secured to their property which will enable them to apply for another bigger loan with a fairer interest rate under better terms. Being on good terms with the hard money loan lenders increases your credit score and this will lead to fruitful real estate investments in the future.
You could also read about private lender vs hard money.
Wholesale Hard-money Loan Lenders
These hard money lenders are rare to find since many lenders aren’t really interested in offering a wholesale lending service since the current and on-going market rate for hard money lending is steadily rising day after day.
People seeking financial assistance from hard money lenders are forced by the urgency for cash to grab a hot deal somewhere or save an on-going investment. Therefore, they bring in a property as collateral and get the cash as soon as possible. The borrower is required to repay the loan on time or refinance to get another loan for further investment.
I believe you eventually understand how to refinance a hard money loan. Follow the steps and guidelines in the article above to master the process in no time.
