Getting out of a hard money loan isn’t as complicated as you might think. There’s a way out with the help of refinancing, but I know what you’re thinking - how fast can it happen, right? Today, I’m here to clear up any confusion and give you an idea of how long it might generally take to refinance your hard money loan so you can move forward with confidence (and save some cash!).
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Start your refinance application 45-60 days before your loan is one year old to avoid delays.
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Hard money loans come from private investors and may lack government rules and restrictions.
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Refinancing has fees like application, appraisal, and discharge fees.
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Hard money loans usually have higher interest rates than traditional bank loans.
Things to Remember
How Soon Can You Refinance a Hard Money Loan?
It's advised to start your refinance application 45-60 days before your hard money loan reaches the one-year mark. Lenders typically have a "seasoning requirement," meaning the loan must be active for at least a year before you can refinance.
By starting early, you can complete the refinancing process and finalize the new loan as soon as you meet this one-year requirement, avoiding any unnecessary delays.
Why Consider Refinancing a Hard Money Loan?
Refinancing a hard money loan can offer several benefits, making it an attractive option for many borrowers. Here are some key reasons to consider refinancing:
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You Can Save Money with Lower Rates
Hard money loans usually have high interest rates. Refinancing to a traditional mortgage or a lower-rate loan can save you a significant amount of money over time.
Start saving with the best mortgage refinance rates at KreditSanta!
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You Get to Secure More Favorable Loan Terms
Refinancing can help you secure better loan terms, such as a longer repayment period or more manageable monthly payments.
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You Can Access Equity in Your Property
If your property has appreciated in value, refinancing can allow you to take out cash based on the new, higher value. This cash can be used for other investments or to improve the property further.
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You’ll Be Able to Stabilize Your Investments
Moving from a short-term hard money loan to a long-term mortgage can provide more stability and predictability, making it easier to manage your finances.
6 Factors to Consider Before Refinancing
Before you start thinking about refinancing, there are a few things you need to consider to ensure a smooth transition to the new mortgage you prefer.
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1. Loan Costs
Refinancing comes with costs, such as closing fees, appraisal fees, attorney fees, and origination fees for processing the loan application. Make sure the benefits outweigh these costs.
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2. Credit Score
Your credit score will impact the interest rate and terms you qualify for. It’s best to review your credit report and work on improving your score if it’s low.
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3. Interest Rates & Mortgage Terms
The main reason people refinance is interest rates, but it’s equally important to consider your mortgage term. If you want to reduce your monthly payments, choose a loan with the lowest interest rate and the longest term.
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4. Private Mortgage Insurance
If you have only accumulated 20% equity in your home, then lenders would require you to pay private mortgage insurance.
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5. Equity in the Property
The amount of equity you have in the property will affect your ability to refinance and the terms you'll be offered. Lenders typically require a certain level of equity to approve a refinance.
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6. Current Interest Rates
Monitor current mortgage rates. Refinancing makes the most sense when you can lock in the best mortgage refinance rates that are lower than those of your current loan.
4 Common Mistakes to Avoid When Refinancing Hard Money Loans
Refinancing a hard money loan can be a smooth process if you avoid some common pitfalls.
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1. Rushing the Process
Take your time to ensure you understand all aspects of the new loan. Rushing can lead to unfavorable terms or missed details.
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2. Overestimating Your Property Value
Be realistic about your property's value. Overestimating it might lead to disappointment during the appraisal process and could affect your refinancing options.
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3. Not Being Current With Property Insurance
Make sure you keep paying your property insurance and taxes. It shows you're responsible, which lenders like to see.
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4. Choosing the Wrong Loan Type
Selecting the wrong type of loan for your financial situation and goals can lead to higher costs or payment terms that don't align with your needs.
Top 3 Proven Strategies to Cut Down Your Refinance Time
If you're looking to refinance your hard money loan quickly, here are some strategies to help fasten the process:
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1. Determine Your Refinance Eligibility
Before you start looking for lenders, figure out what you want from your refinance. Do you want lower payments or to take cash out? Then, check if you qualify with each lender based on your credit report.
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2. Organize All Your Documents
When refinancing your mortgage, you'll need to provide various documents to your lender to verify your financial situation. Organizing these documents beforehand can streamline the application process and help you get approved faster.
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3. Prep Your House for the Appraisal Visit
Look into recent sales of similar homes in your area to understand the current market value. Gather receipts, contracts, and permits for any significant upgrades or renovations you've made to your home.
The Bottom Line
In a nutshell, refinancing your hard money loan can really pay off. You might get lower rates, better terms, and feel more financially secure. Even though it might seem complicated, being ready can make it much simpler.
Just steer clear of common mistakes, use our proven strategies to speed things up, and don't forget to shop around for the best refinancing deal.
About the writer
Spencer Kline
Reverse Mortgage Expert