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A. What are the Financial requirements

Refinancing a hard money loan is thankfully not as involved as refinancing conventional mortgage loan —There are many options from conventional to “investment” private equity loans or what in some circles is called a DSCR loan (Debt Service Coverage Loan.)

In the case of a conventional “Bank” loan, you’ll go through a more conventional mortgage loan process similar to purchasing a new property. The conventional method includes meeting the requirements for credit scores, proof of income, debt-to-income ratio (DTI Ratio),  employment history and time.

If you originally financed your property using a hard money loan because you didn’t meet conventional loan requirements, you will have the same issues refinancing using a conventional loan. Fortunately, there are numerous options to help you refinance your investment property.

One note, your refinance lender will want to see your current mortgage statement and a 12 month history of loan payments.  If you have late payments or missed payments, your odds of approval are minimized. There are some situations where exceptions can be made, but each exception makes the loan more difficult.

B. What are the Property requirements

The real estate itself must also qualify for the loan program that you are looking to apply for. For example, if you are looking to refinance your hard money fix and flip loan, the property needs to be “rent ready”.  Kitchens, Bathrooms, running water, all working. 

Not only that, but if you are looking for cash out refinancing, you may need a few months or more of “seasoning”. Some credit lines require 6 months of rental income other loan products allow you to refinance immediately. 

Through every market turn, there are always exceptions to many of the rules so bring up your concerns to your lending professional.

How to refinance hard money loans

Historically, the three most common ways to refinance a hard money loan were with a:

• Long-term rental loan
• Conventional bank loan
• Government-backed loan

Each has advantages and disadvantages, so let’s take a look.

Refinancing with a Conventional bank loan

As previously mentioned, refinancing with a conventional loan, will need you to meet all the conventional requirements. These are full document loans that require stringent due diligence.

• There is a minimum equity requirement of 20% for a cash-out refinance; as little as 5% for rate-and-term refinance
• Mortgage insurance: Required if less than 20% equity

• Credit score: > 660 in most cases

• DTI: < 50%

• Seasoning for cash-out refinance loan: Six months is standard, but varies by lender and state

Traditional lenders also like to verify your income via W-2s or tax returns. 

Again, these rules aren’t the same from loan product to loan product. But in most cases, refinancing a hard money loan with a conventional bank mortgage has the most rigid underwriting guidelines. 

Be sure you have all your ducks in a row prior to applying for a conventional loan. If anything goes wrong, you will have to change lenders when time becomes more critical.