How to refinance out of a hard money loan before the balloon hits
Hard money is a tool, not a home. It gets you the property fast, it lets you close when a bank would have said no, and it costs you real money every month you leave it in place. Somewhere on that note is a maturity date, and the lender who funded your purchase does not want to hold a 30 year loan. They want to be paid off. This is the playbook for doing exactly that, on your timeline instead of theirs.
Why the balloon sneaks up on investors
Most bridge and hard money notes run 6 to 18 months, interest only, with a balloon payment at the end. The appraisal takes longer than planned, the rehab runs over, tenants take a month to place, and suddenly the maturity is 60 days out. At that point the choices are an extension (points plus a higher rate), a forced sale, or a refinance that has to move fast. The refinance is the right answer for almost everyone. It just has to start earlier than people think.
What a DSCR take out actually is
A DSCR loan qualifies the property, not your tax returns. The lender divides the monthly rent (actual or market) by the full new payment. If the rent covers the payment, the deal works, and your personal income never enters the file. That's why it's the standard exit from hard money: flippers and buy and hold investors rarely show the kind of W2 income a bank wants, and they shouldn't have to.
- 30 year fixed or interest only, no balloon
- Loan amount based on the new appraised value, not what you paid
- Close in your LLC, no tax returns, no employment verification
- Cash out available, so the renovation money comes back to you
Seasoning: the part that trips people up
Seasoning is how long you've owned the property before the lender will use the appraised value instead of your purchase price. This is where a good structure makes or breaks the deal. On the programs Irving uses most, a cash out refinance with a prepayment penalty requires no seasoning at all. Without a prepay, it's six months from the note date. That one choice decides whether you can refinance the week the rehab is done or have to carry hard money for half a year.
Translation: if you bought it in March, finished in June, and the balloon is in September, a no seasoning structure gets you out in July. A seasoned structure gets you out in September, right on top of the deadline.
How much can you pull out
Cash out on a 1 to 4 unit rental runs up to about 80% of the appraised value with 700 plus credit, lower as credit drops or on a first investment property. The new loan pays off the hard money, any second lien, and closing costs, and whatever's left is wired to you.
| Appraised value | 80% loan | Hard money payoff | Est. cash back (before costs) |
|---|---|---|---|
| $600,000 | $480,000 | $390,000 | $90,000 |
| $850,000 | $680,000 | $540,000 | $140,000 |
| $1,100,000 | $880,000 | $700,000 | $180,000 |
Illustration only. Actual loan amount depends on appraisal, rent coverage, credit, reserves and program limits.
The 90 day timeline
- Day 90: send the lender the address, balance, maturity date, rent and a rough value. Get a structure, not a rate sheet.
- Day 85: application signed, appraisal ordered. If the rehab isn't photo ready, finish the punch list first. Appraisers price what they see.
- Day 80: payoff demand requested from your hard money lender. Title opened. Entity docs and insurance sent in.
- Day 70: appraisal back. Final loan amount set. Underwriting conditions cleared as they come in.
- Day 60 or sooner: clear to close, sign, fund. Hard money paid off, cash out wired, 30 days of cushion left over.
What to send on day one
- Current hard money or bridge statement showing the balance and maturity date
- Lease, or the listing if you're still placing a tenant
- Entity documents if vesting in an LLC
- Two months of bank statements for reserves
- Photos of the finished property, before the appraiser shows up
Mistakes that cost investors their cushion
- Waiting for a tenant to sign before applying. Market rent from the appraisal works on most programs. Start now.
- Taking the extension first. Points on an extension are money you never get back. A refinance started on time makes the extension unnecessary.
- Skipping the prepay conversation. It's the lever that removes seasoning. Decide it on purpose.
- Leaving reserves in the deal. Six months of the new payment needs to show up in an account, and cash out proceeds can count.
Questions investors ask
Can I refinance out of hard money with no seasoning?
Yes, on the programs Irving uses most, a cash out DSCR refinance structured with a prepayment penalty requires no seasoning and uses the new appraised value. Without a prepay it's six months from the note date.
What if the rent doesn't cover the payment?
A No Ratio DSCR program can still work at a lower loan to value. The rent coverage affects pricing and leverage, not whether the file is possible.
Do I need tax returns?
No. DSCR loans qualify on the property's rent. No tax returns, no W2s, no employment verification.
How fast can a take out close?
As fast as 10 days on a clean file once the application, appraisal access and signed forms are in. Plan on 30 to 45 days to be safe and start 90 days before maturity.
Can I close in my LLC?
Yes. Entity vesting is standard. You'll sign a personal guarantee and provide formation documents and the operating agreement.
Educational content, not legal, tax or financial advice, and not a commitment to lend. Programs, guidelines and leverage change without notice and depend on credit, property, reserves and occupancy. DSCR, fix and flip and bridge loans are business purpose loans on non owner occupied property.
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Drop the balloon date and the address. Irving maps the take out the same day.