How to Refinance Out of a Hard-Money Loan

Why the exit plan matters

Hard-money and bridge loans are typically short-term, asset-based loans used to buy or renovate a property quickly. Terms, costs and maturity dates are set by each lender. Because they’re designed to be temporary, you need a realistic way to pay the loan off — most often a refinance into longer-term financing, or a sale.

Check your note for the maturity date, any extension options and their cost, and any prepayment terms. Those dates set your deadline.

Seasoning: the rule that surprises investors

“Seasoning” refers to how long you’ve owned the property or held the current loan. Lenders use it to decide whether a refinance is allowed yet, and sometimes which value they’ll use.

For conventional cash-out refinances, Fannie Mae’s Selling Guide states that an existing first mortgage being paid off must be at least 12 months old (measured note date to note date), and that at least one borrower must have been on title for at least six months before the new loan funds, with limited exceptions. For example, time the property was held by an LLC majority-owned or controlled by the borrower can count toward the six months, but the property must be transferred to the individual borrower to close the loan.

In practice, that means a Fannie Mae cash-out refinance generally can’t pay off a hard-money first mortgage that is less than 12 months old. That rule is specific to cash-out refinances, so ask a lender whether a different refinance type or program fits your timing.

Fannie Mae also has a “delayed financing” exception for properties bought within the past six months — but one of its conditions is that no mortgage financing was used for the purchase. Because a hard-money purchase uses financing, that exception generally won’t apply to it.

Non-conventional lenders, including many DSCR lenders, set their own seasoning rules, and they vary. Ask about seasoning before you close the hard-money loan if you can.

How value affects the new loan

A new lender orders an appraisal, and its loan-to-value limits are applied to the value the lender accepts. If you’ve renovated, the improvements may support a higher value — but some lenders and programs limit the value they’ll use for recently acquired properties, so ask how value will be determined in your situation.

Whether paying off the hard-money loan counts as a rate-and-term refinance or a cash-out refinance depends on the program, the timing and how much cash, if any, you take out. That classification can affect the maximum loan amount and pricing.

What to prepare

1. Your hard-money note: balance, maturity date, extension options and any prepayment terms
2. The settlement statement from your purchase
3. A record of improvements: scope of work, invoices and before-and-after photos
4. A lease and rent records, if the property is rented — or a plan to get it rented
5. Insurance information for the property
6. Entity documents, if the property is held in an LLC
7. Recent statements showing funds for closing costs and reserves

Requirements vary by lender and program; this list is a starting point.

A practical timeline

• Before you close the hard-money loan: confirm the likely refinance program and its seasoning, value and rent rules.
• During the renovation: keep receipts, photos and a clear scope of work.
• Once the property is complete (and rented, if that’s the plan): talk with a lender about timing, well before the maturity date.
• Leave a buffer: appraisals, title work and underwriting take time, and extensions on short-term loans can be costly.

What this doesn’t tell you

• The Fannie Mae rules above apply to conventional loans sold to Fannie Mae. Other programs have their own rules, and lenders can add requirements.
• Agency guidelines change. Confirm current requirements before relying on them.
• A completed renovation doesn’t guarantee an appraisal at a particular value, or approval of a refinance.

Plan your exit on our hard-money refinance page, or compare long-term options on the DSCR loans and refinance pages.