Hard Money to Conventional Loan

Hi everyone, I’m new to the forum and love all the information that I’m gathering.

I have finally saved up enough money for the for a 20% to 30% down for a second property.
I’m thinking about getting private money for the following reason:

  1. My credit is around the low 600’s (its currently being worked on and should be in the upper 600’s in a few months).
  2. I could close a deal allot quicker

So I understand that I would have to put in 20-30% money for the down payment. I’m wondering if I can roll into a conventional loan within 60 days after the house has been purchased and fixed up. If so would they do 100% of the vaule of the house?

I’m new to the real estate game and don’t want to get caught up in a mess. Any information would be great. Thanks


You need to be able to qualify for the long term loan before you take the HML.
This generally means a 680+ credit score. (I don’t know what the latest number is but get prequalified with your back end lender before you take the HML.)

Mortgage companies have different FICO formulas than the score you can get online from the credit agencies.
Mine is 680 from experian. My mortgage broker ranks it as 780, 778, 740 from the three agencies.

The amount they will loan is usually 70-75% of ARV. With HML they can loan the purchase price and rehab money as long as it’s <70%ARV. The conventional refi will be for the amount the HML loaned as long as a new appraisal supports the 70% ARV once you’ve completed repairs. Check with your HML to find out what percentage of ARV they will loan. Mine in Texas will do 70%.

Pete, Thanks for replying.

I thought one of the main reasons people use hard money is because of there credit? I wouldn’t see any other value to use hard money because you would have to put in 30% and then deal with a high interest rate…But that is why I’m on here, is to learn.

So when I go to do a conventional refi for the amount of the HML, would I have to put down any money? Would it just be broker fees, etc…? Just trying to get a clear picture of all the $$$ invovled using HML and then rolling into a conventional refi. Also how to work off of OPM…

Thanks again Pete

If you’re doing a flip, you can use hard money to purchase and rehab the property even with bad/no credit.

For a long term hold, you are using the HML for purchase and rehab money and using your money to pay fees/closing costs. You still need decent credit for the refi to a lower rate.
It all depends on the deal as to how much out of pocket you have.

No, on the refi you would not have to put any money down other than closing costs and escrow as long as it appraises for the ARV.
If the appraisal comes in low, you might come out of pocket a bit.

Ideally you buy for 50k, rehab for 10k, closing is 10k for both loans.
House is 100k ARV. (Loan was 70% of 100k)
You are all in for almost 0. You still have to pay for appraisals, inspections, utilities, escrow.
I have never been been able to do this ideal situation and usually come out of pocket about 10k for each house. Still better than 25-30k if going conventional.

Always run your own numbers for comps to come up with ARV and look at what repairs you need to do in that neighborhood to get that ARV.

Thanks Pete for all the helpful advice.

You can also check with your HML for referrals for exit funding. Lots of times they have built relationships with local banks.

Your credit does also play a factor as you know, but the lower the LTV on your refinance the lower your credit can be. For example, the bank may want a 680 for a 70-75% ltv, but only a 620 with LTV’s 60% or lower. Granted this will greatly reduce the your property options, but the cash flow will be nice.

This may help you pick your properties that will already be aligned with the exit lenders criteria.

Be sure to ask what the seasoning requirement is. They may only do a refi on properties that you’ve had 6 months or more. And also document all upgrades to support the new values.

Hope this helps

Hi Aaron,

I am new to investment as well.

I was under the impression that when you re-fi to a conventional mortgage you will need 15% equity remaining to re-fi. I also believe you need to fully support the DTI ratio from your personal income.

Or, you need 75% equity, a rental contract, and 3 months of rental checks for the payment not to be DTI based.

May be wrong though haha… I joined the site to develop a understanding of how to finance more properties. I currently have 2 and wish to get to 10 in the next 5 years.

Good luck

I think Pete did a great job mentoring you on this and he’s right, you need to have your exit strategy (conventional financing) in place before you start with your entrance strategy (HML).