In the world of real estate investing, a hard money loan is a popular financial tool that allows you to get your foot in the door when you don’t have the necessary funds. But if you have already taken out a hard money loan and plans change, you might find yourself wanting to refinance it. In that case, it’s best to find out all you need to know about refinancing a hard money loan.
How Does Refinancing a Hard Money Loan Work?
Refinancing a hard money loan refers to the process of applying for a new loan that replaces the existing hard money loan. The process is just like applying for a new loan, usually a proper mortgage. Once you receive the funds, you use the new loan to pay off the old one.
You then start paying off the new loan as agreed. When you refinance your hard money loan, it’s possible to change the loan terms. For instance, you can apply for a loan with a longer loan term.
Reasons for Refinancing a Hard Money Loan
There are many reasons why borrowers refinance a hard money loan by applying for a traditional mortgage. To begin with, hard money loans tend to come with higher interests, so it’s best to pay them off as soon as possible.
For instance, Atlanta borrowers typically receive an average interest rate of 13.3% on their hard money loans. In that case, perhaps you might have a fix and flip that you put on the market as soon as it’s completed.
But if the sale takes longer than anticipated, you may need to extend your loan term and the interest can really add up. Some property owners often decide not to sell at all, so they decide to switch to a more permanent and affordable option, the traditional mortgage.
How to Refinance a Hard Money Loan
You first need to verify that you qualify for a hard money loan refinance. As mentioned, refinancing is like taking out any other mortgage. To qualify, you’ll need to gather all the necessary documents, such as bank statements, your photo ID, tax returns, and payslips. Your credit score and debt-to-income ratio also need to be in good shape. After the appraisals and the loan underwriting process, you’ll then be able to pay off your hard money loan.
It’s absolutely possible to refinance a hard money loan, and the information above will keep you on the right track.