Hard money loans, which are secured by real properties, offer a repayment period that can range from six months to a few years and are generally easier to secure than traditional loans. Hard money loan companies in Northern California often provide more lenient lending terms compared to traditional financial institutions like banks and credit unions. Their primary focus is on the borrower’s equity in the property in addition to creditworthiness. In this blog, we will delve into the topic of refinancing your hard money loan and explore circumstances under which refinancing your hard money loan can be beneficial.
Why Refinance a Hard Money Loan?
Many borrowers decide to refinance their hard money loans, as it is often a strategic decision. Let’s look at some reasons why borrowers take this route.
Extended Loan Term
Hard money loans are usually short-term, often requiring repayment within a year or two. Construction and renovation projects can get delayed due to unforeseen circumstances. In such scenarios, real estate investors can refinance their hard money loans to get some much-needed extensions, finishing their projects without worrying about an impending payment deadline.
A cash out refinance allows the borrower to refinance for more than they owe on the current loan. They receive a difference in cash, which should be used for business purposes.
If the property’s value has increased since the hard money loan was secured, refinancing can allow the borrower to capitalize on increased equity.
Avoiding Balloon Payments
Many hard money loans have a balloon payment at the end of the loan term. Refinancing a hard money loan can be a great way to avoid this large one-time payment.
How are Hard Money Loan Refinances Underwritten?
When deciding whether to refinance your hard money loan, a hard money lender will want to check the Loan-to-Value or LTV ratio. A lower LTV ratio means less risk for the lender. They will also consider the condition of the property and property type before making a lending decision. Hard money lenders typically favor properties that are in good condition.
Because hard money loans are typically short-term, hard money lenders assess applicants’ exit strategy to see if they have a plan to repay their refinance loan. While hard money lenders usually do weight lending decisions on credit worthiness as much as a traditional bank, they still check their credit scores and will generally collect at least two years of tax returns.
The economic and local real estate market conditions can influence the underwriting process. Lenders prefer stable and growing markets.
Whether you want to take out a hard money loan or refinance an existing loan, Altus Capital Group has got you covered. Our unparalleled ability to tailor lending solutions to our clients’ specific needs sets us apart from other hard money loan companies in Northern California. To make an appointment, call (707) 932-5887.