What are my mortgage options to refinance a hard money loan on a flipped property that is currently listed for sale?
Based on the information you provided, I'm afraid that your mortgage refinance options are limited. The key issue that prevents you from doing a standard refinance is that the property is currently listed for sale.
I am unaware of any traditional lenders that are willing to refinance a mortgage on a property that actively for sale. Additionally, many lenders require a six month waiting period after a property has been taken off the market before they approve a mortgage.
In short, the longer a mortgage is outstanding, the more interest income the lender receives. This is why lenders used to charge prepayment penalties -- because they want your loan outstanding for minimum length of time -- and also why most lenders do not offer mortgages on properties that are for sale.
When a property is sold, the mortgage on the property is almost always paid off. If a lender thinks a mortgage is going to be repaid within a relatively short period of time, because a property is about to be sold, they are highly unlikely to approve the loan.
Another point to keep in mind is that for a standard mortgage program you are usually required to wait at least six months from the date you purchased the property before you can refinance. So depending on when you bought the property, you may be required to wait before you can apply for the mortgage.
Additionally, if you have done significant property renovations consistent with a "fix & flip", lender guidelines usually require you to wait at least one year before the after renovation property value can be used to determine your loan amount. Using the after renovation property value enables you to qualify for a higher mortgage amount so this is an important consideration, especially for a fix & flip investor.
The one exception to these guidelines is a delayed mortgage, which enables you to do a cash out refinance within six months of buying a property. A delayed mortgage also uses the current property value to determine your maximum loan amount which is beneficial for fix & flip investors who have significantly renovated a property.
Review How a Delayed Mortgage Works
A delayed mortgage is only possible if you take the property off the market. Additionally, the program requires that property was purchased with cash although you may be able to get an exception for a hard money loan (but the odds of the lender agreeing to this are low).
Delayed mortgages also apply very specific qualification requirements and charge a higher mortgage rate than a standard refinance. The program also limits the combined loan amount and closing costs to no more than the original property purchase price, which may put a cap on your mortgage proceeds.
If you have already owned the property for at least six months and are willing to take it off the market then you could consider a standard cash out refinance. This may be a more viable option if you bought the home with a hard money loan.
The table below shows refinance rates and fees for lenders in your area. We recommend that you contact multiple lenders to review your financing options and to compare refinance terms.
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If a delayed mortgage or cash out refinance does not work for you, then your final option is another hard money loan. As you likely know, hard money lenders -- also known as private money lenders -- charge significantly higher interest rates and fees but offer more accommodating qualification requirements in other areas.
For example, most hard money lenders do not apply a waiting period after you bought a home and some lenders may offer a short-term bridge loan on a property that is for sale that is repaid with proceeds from the sale.
Review What You Should Know About a Hard Money Loan
If you decide to refinance with another hard money loan be aware of the high costs and potential prepayment penalty you may be required to pay. As an alternative, you may be able to extend your loan with your current lender at more favorable terms or find a new lender that offers better terms.
You can use the FREEandCLEAR Lender Directory to search over 3,900 lenders by type. For example, you can find hard money lenders in your state.
Sources
"B2-1.3-03, Delayed Financing Exception." Selling Guide: Fannie Mae Single Family. Fannie Mae, July 3 2019. Web.
“What is a subprime mortgage?” CFPB. Consumer Financial Protection Bureau, February 24 2017. Web.
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