Hard Money Loan Refinancing in South Florida: Important Considerations

by HMLS

Hard money loans can help with many real estate goals in South Florida. If you’re a homeowner looking to purchase a new house or a business owner wanting to buy a great commercial property, this type of financing can give you the boost of capital needed to seal the deal. Hard money loans are also used frequently by real estate investors and house flippers. When you choose asset-based lending from HML Solutions, you can use hard money loan refinancing to lower your interest rates. How does this process work?

What Are the Advantages of Hard Money Loans?

Hard money loans are a type of asset-based lending. They provide a large amount of capital with short repayment terms. These loans are also known as bridge loans or asset-based loans. When used correctly, they offer several advantages over conventional mortgages:

  • Easy loan application and approval
  • Qualifications based on property value, not your credit score
  • Fast deposit of funds — usually 2 or 3 weeks maximum
  • Complete financing for remodeling, renovations and repairs
  • Available for virtually any residential or commercial property
  • No need for extensive business documents or regular reports to a loan board

Hard money loans are commonly used in real estate to close quickly on properties. They provide financing for your needs when other avenues are too time-consuming or out of reach.

What Is the Purpose of Refinancing Hard Money Loans?

As mentioned, bridge loans shine when used for short-term needs. They’re not a good fit for long-term investments because the interest rates and terms aren’t compatible. At most, you have between 12 and 24 months to pay back asset-based financing.

This is where hard money loan refinancing comes into play. It lets you get around the limitations of bridge loans. This process involves applying for a long-term mortgage and using the funds to transfer the balance from the hard money loan to this new loan.

Hard money lenders are familiar with this type of arrangement. It’s common in the world of real estate. In essence, you get the best of both worlds: fast financing at the beginning of a property purchase and low interest rates once your mortgage gets approved.

Why Do Hard Money Loans Have Higher Interest Rates Than Traditional Loans?

A common question is why you have to worry about refinancing at all. Why do hard money loans have higher interest rates in the first place? There are three main reasons:

  • Lower credit requirements: Hard money lenders look at the value of the property you’re buying instead of your credit score when approving the loan. This means that homeowners and business owners with not-great credit ratings can still qualify for financing, even if they’ve been turned down somewhere else. Traditional lenders have much stricter requirements.
  • Greater risk for the lender: Giving a loan to someone with less-than-stellar credit is risky for lenders. They may not get paid back. Also, many hard money loans involve properties that need repairs. This is a risky proposition because there’s no guarantee the remodeling project will get finished.
  • Flexible terms: Many hard money lenders develop a close working relationship with house flippers and real estate investors. They may waive certain requirements (such as third-party property appraisals) to get the funds approved more quickly when they’re working with a business they trust.

All of these factors make higher interest rates a fair trade. Of course, the better the relationship you have with the hard money lender, the better the terms you can get.

Where Can You Get Refinancing Options for Hard Money Loans?

Some hard money lenders provide both short-term and long-term loan options. They use asset-based lending for short-term financing and credit checks for the long-term loans. Because you’re partnering with this lender for a hard money loan anyway, it’s a good idea to ask what long-term financing is offered. You may get better interest rates and terms that way — almost like a package deal.

If asset-based lenders don’t provide long-term loans, the next place you may think of for hard money loan refinancing is a traditional bank. Large financial institutions offer a range of residential and commercial mortgages. This option may be favorable when the US market has especially low interest rates.

Unfortunately, there’s also a catch to refinancing via traditional lenders. You have to qualify for the refinanced loan first. This means you have to meet the same credit requirements you would’ve needed from the very beginning. If you have great personal or business credit, you shouldn’t have problems, but people with past credit issues may not qualify.

Where else can you look? Alternative lenders may be a good fit. They generally offer long-term loans with interest rates that fall in between hard money loans and conventional mortgages. You can check out rates and requirements online most of the time.

When Should You Start Hard Money Loan Refinancing?

There are several things you can do to make it easier to qualify for a low-interest loan. One of the most important is applying at the right time. When is that? It depends on what kind of real estate you purchase and what the condition of the property is.

If you’re buying an investment property that works great as is, or you’re planning on reselling it right away, you can apply for refinancing almost immediately. In fact, many real estate investors get started with both types of loans at the same time: the hard money loan and the mortgage.

It can take anywhere from 3 to 5 months for a mortgage to get approved and processed. You can get the ball rolling on this long-term loan, apply for a short-term hard money loan and use the capital to purchase your property. By the time you’re finished closing, the mortgage should be just about ready for hard money loan refinancing.

Things are different for fix-and-flip projects or real estate that needs some improvements. Most banks won’t give you a mortgage for a property that is incomplete, needing repairs or in the middle of a renovation. Fortunately, a hard money loan can cover all of these needs, including closing costs, materials costs and remodeling expenses. Wait until the project is fully finished before submitting your application for refinancing a hard money loan.

What Factors Should You Consider When Applying for Hard Money Loan Refinancing?

It’s important to consider your goals to make sure you get the best deal when refinancing a hard money loan. If you’re a homeowner or a business owner just looking to purchase one new piece of real estate, you’re probably focused on selling your old property ASAP. On the other hand, real estate investors absolutely need to get the lowest interest rates possible with refinancing if they want to maximize their profits. Depending on the market, house flippers may benefit more by just selling the new property and using the proceeds to pay off the hard money loan directly. Whatever your needs, following a few tips can get you excellent results and save you money.

Ask About Prepayment Penalties

Many hard money lenders are willing to give you a loan that doesn’t carry any prepayment penalties. In case you’re wondering, prepayment penalties are fees charged when the loan gets paid off ahead of time to compensate for lost interest payments. A hard money loan with no prepayment penalties may carry slightly higher interest rates, but it’s worth it if you’re planning on refinancing and transferring the hard money loan balance quickly. This option is also a good idea if you believe your property is going to sell immediately.

Get the Property Ready To Rent

In the case of commercial and residential property investors, it’s important to note that “under construction” also includes minor changes to get an apartment or space rent ready. Painting, adding trim, changing cabinets, installing new flooring and performing other cosmetic design changes must be finished before you can apply for long-term financing.

Avoid Applying Everywhere at Once

It’s a smart idea to check out the interest rates, requirements and options for hard money loan refinancing at different lenders. This can help you make a great choice that fits your needs. What you want to avoid, however, is filling in multiple loan applications at different locations.

Some people make this mistake hoping to see which one gets approved. In reality, doing this can get you turned down everywhere, hurt your credit rating and force you to pay higher interest rates. When one lender sees you’ve filled out an application somewhere else, they automatically see it as a red flag for any loan.

How Can a Good Relationship With Your Hard Money Lender Help With Refinancing?

Whatever your goals, choose the right hard money lender. Even if you have to choose a different lender for refinancing, it still pays to maintain a good business relationship with a hard money lender you trust. The new financial institution requests a payoff from the hard money lender, which may contain information about late payments or other problems. When you’ve managed your hard money loan like a pro, it’s easier to qualify for hard money loan refinancing as well. Contact the experts at HML Solutions to learn more.

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