Refinancing Out of Hard Money: When You Can and What It Takes
The hard money loan did its job. Now the clock is running. Here is when a permanent lender will take the property, which loans to use, and the seasoning rules that decide the timing.
You can refinance out of a hard money loan as soon as the property is finished and rented, and a permanent lender will typically let you use the new appraised value after three to six months of ownership for a rate-and-term refinance, or six to twelve months for cash-out. Most exits from hard money go into a DSCR loan for a rental, a bank or credit union loan, or a longer bridge loan when the property is not stabilized yet.
This guide covers the timing rules, the loan options, the numbers, and the mistakes that leave investors stuck in an expensive loan longer than planned.
Why the timing matters
Hard money is expensive by design: typically 10 to 14 percent interest only with two to four points, on a term of six to eighteen months. Every month you stay past the point where a permanent loan would have taken the property costs you the difference, and at the end of the term you face extension fees or a maturity default. The refinance should be planned before the hard money loan closes, not after.
When a permanent lender will take the property
Three things need to be true:
- The work is done. The property is rent-ready, and any permits have been closed out.
- It is producing income, or can. For a DSCR loan, that means a lease in place or an appraiser's market rent that covers the new payment.
- Seasoning is met. Lenders set a minimum time on title before they will use the new appraised value instead of your purchase price.
| Refinance type | Typical seasoning to use appraised value | Typical maximum LTV |
|---|---|---|
| Rate and term (pay off hard money, no cash back) | 0 to 6 months, many lenders at 3 | 75 to 80 percent |
| Cash-out | 6 to 12 months | 70 to 75 percent |
| Delayed financing (cash purchase, recoup funds) | 0 to 6 months, limited to your cost basis | 70 to 75 percent |
If you are under the seasoning period, some lenders will still refinance using the lower of purchase price plus documented improvements or appraised value. That often still pays off the hard money loan, since the hard money lender lent against cost in the first place.
Which loan to refinance into
| Option | Best for | Typical rate | Timeline |
|---|---|---|---|
| DSCR loan | Rented one to four unit property, LLC vesting, no tax returns | 1 to 2 points above conventional | 3 to 4 weeks |
| Bank or credit union portfolio loan | Borrowers with strong personal income and relationships | Often lowest available | 45 to 60 days |
| Conventional investment loan | Borrowers with documentable income and fewer than ten financed properties | Lowest fixed rates | 30 to 45 days |
| Bridge loan, longer term | Property not yet stabilized, lease-up still under way | 8 to 12 percent | 2 to 4 weeks |
| Agency small balance (5+ units) | Stabilized apartment buildings, usually $1 million and up | Competitive fixed rates | 60 to 90 days |
For most single-family and small multifamily rentals coming off a rehab, the DSCR loan is the path of least resistance: no income documentation, LLC vesting, and a 30-year term. The property has to cover the payment by about 1.20 for the best pricing.
The numbers that decide it
Value. The appraiser establishes the after-repair value. Provide before-and-after photos, the scope of work, receipts, and comparable sales you used when you bought. An appraiser working from your documentation lands closer to your number.
Rent. The appraiser also establishes market rent. A signed lease at or above market makes the DSCR calculation clean.
Coverage. New payment at the new rate against the rent. If the ratio is below 1.00, you will need a lower loan amount or a lender that accepts a lower ratio.
Credit and reserves. Hard money lenders rarely cared. The permanent lender will. Plan on a 660 minimum score and three to six months of the new payment in reserve.
Payoff. Ask the hard money lender for the payoff amount and any minimum interest or exit fee. A three-month minimum interest clause means refinancing in month two costs you the third month anyway.
A worked example
You bought a duplex for $400,000 with a hard money loan of $360,000 covering purchase and rehab at 12 percent and three points. After a four-month renovation it appraises at $560,000 and rents for $4,400 a month. At six months you apply for a DSCR cash-out refinance at 75 percent LTV, which is a $420,000 loan. The new payment, including taxes and insurance, is about $3,400, for a DSCR of roughly 1.29. The refinance pays off the $360,000 hard money loan, covers closing costs, and returns most of your cash. Carrying the hard money loan two extra months while waiting for seasoning costs about $7,200 in interest, which is why the timeline was set on day one.
Where refinances get stuck
- Appraisal comes in low. Provide comps and documentation before the appraisal, and ask for a reconsideration with new comps if it misses.
- Property is not rented. Sign a lease, or use a lender that accepts market rent on a vacant unit.
- Seasoning short for cash-out. Take a rate-and-term refinance now, cash-out later, or wait if the extra months cost less than the difference.
- Credit dropped during the project. Contractor charge cards and maxed lines are common. Pay balances down before the credit pull.
- Hard money loan matures first. Ask for an extension in writing before the maturity date, not after.
How CommFi handles the exit
One application, ideally before the hard money loan closes. Our lending desk prices the exit first and funds direct when it fits. When the property needs a specific box, such as a five-unit, a short-term rental, or a sub-1.00 ratio, the desk searches a database of 7,000+ lenders and the ones that fit compete for the refinance. Zero upfront fees.
Next step
Start the ten-minute application and get a pre-qualification letter for the permanent loan. If you have not yet closed the hard money loan, this is the moment to confirm the exit works.
Related answers
- How soon can I refinance out of a hard money loan?
- What are seasoning requirements on a refinance?
- How does a cash-out refinance on an investment property work?
- Can I refinance a hard money loan into a DSCR loan?
- What if my refinance appraisal comes in low?
- How does the refinance step of BRRRR work?
- What is delayed financing after a cash purchase?
- Can I refinance out of hard money with bad credit?
Frequently asked questions
- How soon can I refinance out of a hard money loan?
- As soon as the property is finished and rented, and the new lender's seasoning rule is met. Rate-and-term refinances often allow the appraised value at three months, sometimes sooner. Cash-out usually requires six to twelve months.
- What is seasoning on a refinance?
- The minimum time you must own the property before the lender will lend on its new appraised value rather than what you paid. It typically runs three to twelve months depending on the lender and whether you are taking cash out.
- Can I refinance a hard money loan into a DSCR loan?
- Yes. This is the most common exit for rentals. The property needs to be rent-ready with rent covering the new payment by about 1.20 for the best pricing, and you need a credit score around 660 or higher.
- Do I need tax returns to refinance out of hard money?
- Not for a DSCR loan. Bank and conventional loans will require income documentation.
- What if the property appraises lower than expected?
- The loan amount drops with it. Provide comparable sales and a detailed rehab file to the appraiser up front, and request a reconsideration of value if the report misses.
- What does it cost to stay in hard money an extra month?
- On a $360,000 loan at 12 percent, about $3,600 per month in interest, plus any extension fee if you pass the maturity date.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.