Leveraging Hard Money Loans for Property Investments

If you make a living by investing in real estate, then you know it’s important to keep your revenue flowing. In many cases with a cut-and-dry real estate purchase, it’s easier to finance your investment with a hard money loan, which is a great short-term option.

As we all know, real estate purchases don’t always go smoothly and you may need an extension on your short-service loan. When that happens, it can be stressful and you may wonder if refinancing your hard money loan is an option. 

Hard Money Loans Defined

Before you consider refinancing, you must understand what a hard money loan is and how it is used. Hard money loans are often used as private funding for investors who are in need of a short-term financing solution for a real estate opportunity. These asset-based solutions are great alternative options for investors who may not be interested in pursuing a traditional bank loan for one reason or another.

Aside from being a short-term financing solution, hard money loans also require less documentation than a traditional loan, and the underwriting process is often much more straightforward. The process from application to closing is much faster as well, which is great for investors who need a quick turnaround on their investment. Many hard money loan financers prioritize the property value over the borrower’s credentials that often get held up with a traditional bank loan, such as credit score, income, and financial history.

Potential Drawbacks

Of course, hard money loans have several considerations to keep in mind before committing to one. Hard money loans often carry higher interest rates than traditional loans, which can range up to 12%. They are also much less lenient with their LTV ratios, which top off at around 75%. This can make it a more expensive option than conventional financing. As a private investment, hard money loans are more volatile and risky to take on, which is why you’ll see higher rates and lower LTV values.

If you need a fast turnaround and don’t have time to spend with slow processing and decisions from traditional banks, it can make choosing a hard money loan for your real estate investment a better option, even despite the higher costs. First-time investors who want to break into the real estate market may find that hard money loans are the best option to quickly build up their lending portfolio. If you’re in the market for a quick turnaround with short-term gains, then a hard money loan may be your best option.

Understanding Refinancing

Now that you understand the fundamentals of how a hard money loan works, the question becomes whether or not refinancing is a viable option if you suddenly find yourself up against loan deadlines, property delays, or other holdups that affect your financing. 

Every scenario is different and should be carefully evaluated, but in most cases, it is possible to refinance a hard money loan. Many times, refinancing is dependent upon a number of factors, such as your lender and their investment offer relative to your overall plan. In most cases, hard money loans are designed to have a maturity date of 12-24 months after closing. Of course, in cases where things don’t go smoothly and you need an extension, new strategies should be considered to ease your stress and prevent payback issues. 

If you run into an issue, you should inform your lender right away. Communication is key, and your lender should be aware of any scenarios before they get out of hand. They may be able to help prevent issues by using their expertise to provide advice and guidance to keep you on track. As a stakeholder in your project, they have a vested interest in seeing you succeed and will want to do anything they can to keep your project on track. 

In situations where you have both exhausted all your options and you are still likely to fall short of meeting your initial payment schedule, the lender will likely still find a way to make the investment work if they can see its potential. In these cases, they will likely extend the repayment period beyond the initial agreed-upon deal to give you a chance to fulfill your end of the deal.

Remember to be honest with your lender and keep an open line of communication to maximize your chances of success. Lenders understand that things happen, but with a plan, communication, and alternate ideas to help your investment succeed, refinancing your hard money loan is possible.

HML Solutions specializes in hard money loans for real estate investment. Contact our offices today to get the funding you need.