Many individuals get a hard money loan for real estate to purchase an off-market transaction, flipping a house, cashing out for immediate business requirements, or paying off a maturing note. However, occasionally circumstances make refinancing the loan impossible, placing the borrower between a rock and a hard place. If you want to refinance out of a private loan, there are a few procedures you may need to do before you can get a conventional loan.
Improve the property
In order to get a loan from a conventional bank, the condition of the property must meet specific criteria. Before you can refinance a fixer-upper, you will need to complete some of the necessary repairs. For a home to qualify for a conventional loan, it must be “safe, sound, and structurally stable”; thus, you should prioritize your renovations based on these criteria. You must also have an occupancy certificate and no code infractions, so be ready to wrap up any loose ends.
Make tenant upgrades
If you own a commercial property, you should implement tenant improvements that make it simpler to rent to the desired sorts of renters. Tenant improvements include painting, the installation of lighting, flooring, and drop ceilings, and the construction of partitioned offices, a break room and kitchen, new restrooms, and conference rooms.
Most traditional lenders will not give loans for unoccupied business premises. Ideally, the space should be rented to make the property more attractive for traditional financing. This may need that you make specific renovations once the space is occupied to secure a rental agreement before refinancing.
Credit improvement
For a conventional loan, a minimum credit score of 620 is required. Work to improve your score so you can refinance if it does not satisfy the requirements. You may use the following strategies:
- Obtain a free copy of your credit report to learn where you may make improvements.
- Establish a record of prompt bill payment.
- Keep your credit card balances at or below 30 percent of your credit limit, and preferably at or below 10 percent.
- To reduce your debt %, request an increase in your credit limit.
- Avoid applying for new credit since credit inquiries from new creditors might temporarily reduce your score.
- Even if you don’t use them, you should keep old credit cards active.
- Consider debt consolidation.
- Monitor your credit score so you can gauge your progress.
Consider engaging with a credit restoration business to help you eliminate the things that have the most significant influence on your credit score. The assistance of a specialist might assist you in prioritizing your efforts so that you can qualify for a conventional loan more quickly.
File your taxes
Conventional lenders base their choices on your tax returns, so if you need to catch up on filing, the time is now. Collect the tax records you possess to determine what is lacking. You may be required to obtain missing documents from an employer or the IRS in order to fill in the gaps. Utilize the services of a tax preparer to guarantee accuracy and thoroughness. For any late payments or files, be prepared to pay fines and interest costs. If the expense of changing your taxes to rectify your underreported income is low, it may be enough to bring you over the debt-to-income hurdle, making it worthwhile if you’re attempting to refinance out of a hard money loan.
Consider an alternate hard money lending option.
Some of these actions might take a considerable amount of time, so have a backup plan for refinancing your existing hard money loan. Take advantage of private lending firms. Such firms provide rapid closures for borrowers who are unable to pay off their debts immediately, enabling them to refinance into a flexible private loan. Because their loans are based on equity rather than credit scores or tax returns, you may be qualified even if you do not qualify for a conventional loan. Additionally, private loans do not have the same standards regarding the property’s condition as conventional loans, so you may be able to avoid or postpone making modifications.
Read more about hard money loan refinance now if you would like to learn even more about hard money loans and how they may be used for house flipping and a wide variety of other real estate transactions.
