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Can You Refinance a Hard Money Loan?

When it comes to securing a real estate deal quickly, a hard money loan can be just what you’re looking for. Hard money loans are specialized short-term loans for borrowers who need immediate financing. These loans are popular for their quick processing times and relaxed emphasis on the borrower’s credit profile, unlike traditional bank loans. However, the higher interest rates and shorter amortization periods associated with hard money loans make refinancing necessary for many borrowers. By refinancing a hard money loan, borrowers can lower monthly payments, save on interest, and gain better financial flexibility.

What is a Hard Money Loan?

A hard money loan is a type of financing typically used in real estate investments secured by the equity position of real commercial or residential property. Normally, these short-term loans only last six to twenty-four months but could run as long as five years. Hard money loan programs can include primary, secondary, and sometimes third lien positions. Unlike conventional loans provided by banks and based primarily on the borrower’s creditworthiness and financial history, hard money loans are issued by private lenders or companies focusing more on property value. Hard money loans aren’t backed by government agencies, which means the interest rates can be a lot higher than those that are federally issued. With hard money loans, borrowers have a much easier time building wealth through real estate.

Characteristics of Hard Money Loans


Hard money loans are usually granted for short durations, typically ranging from six months to a few years, as opposed to the 15 to 30-year terms common with more traditional mortgage financing.

High-Interest Rates

Due to the higher risk associated with lending without extensive credit checks, lenders charge higher interest rates compared to traditional loans.

Quick Access to Capital

One of the most significant advantages of hard money loans is the speed with which investors can access capital. Approval and funding can occur within days, which is crucial for investors looking to close deals quickly.

Property as Collateral

The loan is secured against the property being financed. If the borrower defaults, the lender can seize and sell the property to recoup their investment.

Hard money loans are particularly popular among real estate developers and house flippers who plan to renovate a property and sell it for a profit within a short period. These loans also appeal to those unable to secure traditional financing due to credit issues or unique property types.

Is It Possible to Refinance a Hard Money Loan?

Absolutely! Refinancing a hard money loan is not only possible but also quite common in real estate investing. Refinancing means replacing your existing debt obligation with another under new terms, which might include a reduced interest rate, an extended repayment period, or other improved conditions. Borrowers can refinance their hard money loan with another hard money lender or a traditional lender. Common reasons for needing to refinance with another hard money loan include:

  • Not qualifying for traditional financing
  • Don’t have the time to wait several weeks for a traditional loan to be approved
  • Want to adjust the term length or interest rate
  • Aren’t ready to sell the property
  • Still need funding for a fix-and-flip property
  • Trying to avoid a foreclosure
  • Need to secure another investment property immediately

Whether residential or commercial, Independent Lending’s asset-based lending for real estate in California allows you to tap into the equity in your property to accomplish your financial goals. We keep things simple. Our asset-based lending process offers financing without the burden of having to provide piles of financial documents like W-2s, tax returns, or recent pay stubs. With lighter paperwork, we can get you through the approval process and fund your loan quickly!

Otherwise, borrowers can work toward securing long-term financing. The typical scenario involves real estate investors purchasing properties that need significant renovations. After improving the property and increasing its value, it becomes possible to secure traditional financing, which usually offers lower interest rates and longer repayment terms.

How Soon Can You Refinance a Hard Money Loan?

Just how soon you can refinance a hard money loan will depend on the lender. Many lenders like to see borrowers wait several months before moving forward with refinancing solutions. Nearly all hard money lending institutions want a three to six-month window of guaranteed interest at a minimum. Borrowers who refinance too early may be given a prepayment penalty to compensate for the lost interest income they were expecting. There are two kinds of penalties: Soft prepay penalty and hard prepay penalty.

Soft Prepay Penalty

Borrowers are only obligated to pay a penalty on the remaining months left in their ensured interest duration. For instance, if four months of a six-month soft prepay has been paid, the borrower only owes two months’ penalty.

Hard Prepay Penalty

A hard prepay is much less forgiving. Borrowers are required to pay a penalty charge equal to the full penalty amount. For instance, if the borrower has paid four months of a six-month hard prepay, they would be obligated to pay an extra six months of payment.

The appropriate timing to refinance a hard money loan varies significantly based on several factors, such as the loan’s purpose, the completion of property improvements, and the stabilization of rental income if the property is an investment. Generally, borrowers aim to refinance as quickly as possible once they meet the criteria for conventional financing.

Requirements for Refinancing a Hard Money Loan

Securing a hard money loan typically only requires collateral, such as the financed property. However, that’s not the case when refinancing a hard money loan with traditional financing; it mirrors the same process as refinancing any kind of conventional mortgage. Refinancing a hard money loan with a traditional loan involves meeting more stringent criteria. Below are some key requirements:

Credit Score

A good to excellent credit score is crucial for refinancing as it demonstrates the borrower’s financial reliability and creditworthiness. With a higher credit score, borrowers have better access to competitive interest rates and loan terms.

Income Verification

Lenders require proof of stable income to ensure the borrower can afford the new loan payments. It might include providing recent pay stubs, W-2 forms, or tax returns.

Debt-to-Income Ratio

This ratio measures how much of a borrower’s income is used for debt repayment, with most traditional lenders preferring a ratio under 43%.

Loan-to-Value Ratio

Lenders typically look for a loan-to-value ratio of 75% or lower. After renovations, the property must be appraised to ensure it meets this criterion.

Property Appraisal

An appraisal will ascertain the property’s current market value, helping lenders evaluate the loan-to-value ratio, a critical determinant in the approval process.

Completion of Repairs and Renovations

Lenders often require that all significant renovations funded by the hard money loan be completed before they will consider refinancing the loan.

Seasoning Period

Some lenders impose a “seasoning” requirement, meaning the borrower must have owned the property for a certain period (usually between six months to a year) before they will refinance.

Rental Income

For properties generating rental income, lenders will review the rental agreements and actual income to assess the borrower’s ability to manage the new loan payments.

How to Refinance a Hard Money Loan

The process of refinancing a hard money loan is methodical and detailed. Here are the steps involved:

Evaluate Your Financial Situation

Begin by thoroughly assessing your current financial standing, including your credit score, income level, and existing debts. This evaluation will help determine your eligibility for refinancing.

Check the Property’s Eligibility

Make sure that the property, especially if it was renovated with the hard money loan, meets the physical and valuation standards required by potential new lenders.

Shop for Lenders

Look for the best refinancing options by comparing terms from various financial institutions, including banks, credit unions, and specialized mortgage lenders.

Apply for the Refinance Loan

Once a suitable lender is found, complete their loan application process, which will include extensive documentation and verification steps.

Property Appraisal

A new appraisal will be necessary to confirm the property’s value and condition, ensuring it meets or exceeds the lender’s requirements.

Close on the New Loan

If the application is successful, the final step is closing the deal, which involves settling any outstanding costs and officially transferring the debt from the hard money lender to the new creditor.

Refinancing Hard Money Loans with Independent Lending

Independent Lending is the leading hard money lender in Arizona, California, Florida, and Texas. With over forty years of combined mortgage lending experience, we have been earning the trust of our numerous clients since 2013. Our asset-based hard money loan programs have no upfront fees and can give you the funds you need in a matter of days. Also, they can be underwritten on a case-by-case basis for practicality and flexible terms. At Independent Lending, we pride ourselves in successfully helping to navigate hard money loan programs for our valued clients. With an A+ rating with the BBB and hundreds of five-star reviews for our service, our lending professionals are ready to assist you in your financial real estate goals. Contact us today to leverage our experience for success!

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