How to Refinance a Hard Money Loan
A hard money loan offers borrowers an opportunity to get quick financing without having to deal with the red tape associated with traditional bank loans. They’re often used by people facing foreclosure or looking for capital in order to flip a piece of real estate. These loans have high interest rates and shorter repayment periods, which means they need to be paid back quickly. However, if this is a problem, you can refinance a hard money loan.
For many people, this is a great time to buy a house. According to the U.S. Department of Housing and Urban Development, mortgage rates have fallen since November of 2018, reaching an average weekly low of 3.75% in June.
Unfortunately, those with bad credit still aren’t able to secure a loan from a bank. However, with a hard money loan, a private lender uses the value of the property as collateral instead of looking at your credit score. But what happens when the unexpected occurs and you can’t pay back the lender on time? It turns out there are ways to refinance a hard money loan. Let’s go over a few.
Consider a Fixed Mortgage
If you secured a hard money loan to purchase your home or avoid foreclosure, you may now be able to get approved for a fixed mortgage loan. Sure, you weren’t able to get approved for a traditional mortgage loan in the first place, but things could be different now. The initial hard money loan may have allowed you to improve your credit score.
Securing a fixed mortgage loan will allow you to pay off the private lender you got the hard money loan from. This may seem counterproductive. However, a fixed mortgage will carry a much longer repayment period and allow you to lock into a low interest rate.
This approach allows for a lot more breathing room than a hard money loan does. You have more time to focus on paying off the loan. Plus, your monthly budget won’t be eaten up by high interest rates.
Refinance with a Home Equity Loan
If you got a hard money loan to make renovations to your home, you may be able to use a home equity loan to pay it off. It’s important to remember that you’ll need to have acquired healthy equity and also a good credit score. If you don’t have this, you won’t get the loan.
Some homeowners seek out hard money loans when they can’t get a home equity loan due to bad credit. The hard money loan allows them the financial security to rebuild their credit score. If you’re in this position and want to refinance a hard money loan, consider applying for a home equity loan again. You healthier credit will make it easier to get approved.
Look for a Subprime Lender
Another option is to find a subprime lender to secure financing to pay off your hard money loan. Many subprime lenders work with banks and provide options for those who don’t qualify for a traditional loan.
What makes these lenders unique is they’ll do business with individuals with bad credit and lots of debt. The subprime loans they offer carry different terms. There’s a good chance you’ll have an interest-only or adjustable-rate mortgage.
On the surface, these loans may seem unattractive. However, they allow you the ability to refinance a hard money loan and enjoy a long repayment period.
A Cash Loan
If your hard money loan has a relatively low balance, getting a cash loan will allow you to pay it off quickly. This approach should only be used as a last resort, as most cash loans have very high interest rates. Many of these loans also come with fees. However, as Warren Buffet said, “Cash combined with courage in a crisis is priceless.” It may be time to bite the bullet.
Only consider this option if you’re at risk of losing your property by not adhering to the terms of the hard money lender. Yes, you’ll have to deal with paying back the cash loan, but you won’t lose your home. Look for a lender who’ll provide a little flexibility regarding the terms of your cash loan. If you find the right lender, you may be able to pay it off without much hassle.
Resources: