You can refinance a hard money loan into a long-term mortgage, and for most real estate investors that swap is the planned exit from day one. Hard money notes typically carry interest rates of 9% to 12% for first-position loans and demand full repayment within 6 to 24 months, so replacing that debt with a conventional or investor-focused mortgage is how you protect your margin. Whether the refinance closes cleanly comes down to three things: how long you’ve held the property, how you and the property underwrite, and which loan product you choose.
When You Can Refinance
Seasoning is the waiting period a lender imposes before it will approve a refinance, and it trips up more investors than any other rule. Fannie Mae and Freddie Mac both require that at least one borrower has been on title for six months before a cash-out refinance closes. On top of that, if you’re paying off an existing first mortgage (your hard money loan counts), that note must be at least 12 months old measured from its original note date to the note date of the new loan.1Fannie Mae. Cash-Out Refinance Transactions2Freddie Mac Single-Family. Cash-out Refinance
Those overlapping clocks mean most investors hold the property at least 12 months before a standard cash-out refinance closes. A limited (no cash-out) refinance still requires the six months on title, but the 12-month mortgage seasoning does not apply, which shortens the timeline when you’re simply swapping into a lower rate without pulling equity.
The Delayed Financing Exception
Fannie Mae’s delayed financing rule is the workaround that matters for hard money borrowers. If you bought the property with cash or cash-equivalent funds (which effectively describes a hard money purchase), you can do a cash-out refinance inside the first six months. The new loan is capped at the original purchase price plus closing costs, and standard cash-out LTV limits apply: 80% for a primary residence, 75% for a second home, and 75% for a single-unit investment property.1Fannie Mae. Cash-Out Refinance Transactions You’ll need the settlement statement from the original purchase and proof that no mortgage financing was used to buy the property.
Other exceptions to the six-month title rule include property acquired through inheritance, property awarded in a divorce or legal separation, and property held by an LLC you control (the LLC’s holding period counts toward the six months).1Fannie Mae. Cash-Out Refinance Transactions
Qualifying for the New Loan
Once the seasoning clock has run, the question is whether you and the property qualify for the permanent loan. Lenders weigh several factors, and their relative importance shifts depending on which product you’re pursuing.
Credit Score
For conventional conforming loans, 620 has long been the minimum. Fannie Mae removed the hard 620 floor for loans submitted through its Desktop Underwriter system in late 2025, letting the software assess risk more holistically.3Fannie Mae. Selling Guide Announcement SEL-2025-09 In practice, most individual lenders still impose 620 as an overlay, and manually underwritten loans retain the 620 requirement. Scores of 680 and up unlock materially better rates.
Loan-to-Value Ratio
Loan-to-value ratio (LTV) measures how much you’re borrowing against the appraised value. For investment property refinances, Fannie Mae and Freddie Mac cap LTV at 75% for a single unit and 70% to 75% for multi-unit properties, depending on the transaction.4Fannie Mae. Eligibility Matrix5Freddie Mac. Maximum LTV/TLTV/HTLTV Ratio Requirements for Conforming and Super Conforming Mortgages You need at least 25% equity after renovations. Primary residences allow up to 80% LTV on cash-out.
Debt-to-Income Ratio
Debt-to-income ratio (DTI) compares your total monthly debt payments to your gross monthly income. Conventional loans run through Fannie Mae’s system cap DTI at 45%.4Fannie Mae. Eligibility Matrix FHA loans cap DTI at 43%, though strong compensating factors can push that to 45%.6Department of Housing and Urban Development (HUD). HUD 4155.1 Chapter 4, Section F – Borrower Qualifying Ratios Overview Every financed property’s payment counts against your DTI, which is where experienced landlords often hit the wall on conventional products and switch to a DSCR loan.
Cash Reserves
Fannie Mae requires six months of reserves for investment property transactions and for any cash-out refinance where DTI exceeds 45%.7Fannie Mae. Minimum Reserve Requirements Reserves means liquid assets sufficient to cover six months of mortgage payments, taxes, and insurance. If you own other financed properties, the lender may require additional reserves for those.
Property Condition and Title
If you used hard money for renovations, the property generally needs to be habitable with a certificate of occupancy before a traditional lender approves the file. Title also has to be clean and insurable. Unpaid contractors can file mechanics’ liens, and lenders will not close until the title clears. Keep signed lien waivers from every contractor in your refinance file.
Loan Products to Consider
Not every investor fits the same lending box. The right refinance depends on your income documentation, how well the property cash-flows, and how unconventional the deal is.
Conventional Conforming Loans
These follow Fannie Mae and Freddie Mac guidelines and offer the lowest rates, usually on 15- or 30-year fixed terms. The tradeoff is full documentation: personal tax returns, employment verification, strict DTI limits. If you have W-2 income or clean Schedule E rental income and fewer than 10 financed properties, this is the cheapest path.
DSCR Loans
Debt service coverage ratio loans underwrite the property’s income instead of yours. The lender divides gross rental income by the total monthly debt payment (mortgage, taxes, insurance) and looks for a ratio of at least 1.2, meaning rent exceeds the debt payment by 20%. Some lenders set the floor at 1.25 for better pricing. Rates are higher than conventional, but DSCR loans solve a real problem for self-employed investors or anyone whose tax returns suppress reported income.
Bank Portfolio Loans
Some banks and credit unions keep certain mortgages on their own books rather than selling to Fannie Mae or Freddie Mac. Because the institution retains the risk, it can customize terms for deals that don’t fit standard underwriting: mixed-use properties, non-warrantable condos, borrowers with more than 10 financed properties. Rates are typically a bit higher and fixed-rate periods shorter, but the flexibility can be worth it.
FHA 203(k) if You’ll Occupy
If the property still needs work and you plan to live in it, an FHA 203(k) loan rolls renovation costs into the mortgage. The Limited version covers up to $75,000 in improvements; the Standard version handles larger projects with a $5,000 minimum and no separate cap beyond the area’s FHA loan limit, and requires a HUD-approved consultant.8U.S. Department of Housing and Urban Development (HUD). 203(k) Rehabilitation Mortgage Insurance Program Types These loans are limited to owner-occupied properties, so they don’t work for pure investment deals. They can fit if you’ll occupy one unit of a small multi-family.
Check the Prepayment Penalty First
Before you line up new financing, pull the hard money loan agreement and look for a prepayment penalty clause. Many hard money contracts include penalties for early payoff, and because these loans are typically classified as business-purpose rather than consumer-purpose debt, the federal Qualified Mortgage rules that cap prepayment penalties don’t apply.9Consumer Financial Protection Bureau. Ability-to-Repay and Qualified Mortgage Rule – Small Entity Compliance Guide Whatever your contract says controls.
Common structures include a flat percentage of the remaining balance (often 2% to 5%), a minimum number of months’ interest, or a lockout window during which prepayment isn’t allowed at all. Run the math both ways. Waiting an extra month or two to clear the penalty window sometimes saves more than the extra interest you’d pay on the hard money note.
Closing Costs and Documents
Refinancing isn’t free. Total closing costs typically run 2% to 6% of the new loan amount, or $6,000 to $18,000 on a $300,000 refinance. Expect line items for appraisal ($300 to $425 on a single-family home, more for complex or multi-unit properties), a lender’s title insurance policy, county recording fees, attorney or settlement agent fees where required, and often an origination fee of 0.5% to 1%. Ask each lender for a Loan Estimate within three business days of application; the form is standardized so you can compare offers side by side.
Assemble your paperwork before you apply. Request a formal payoff statement from your hard money lender close to submission (they typically expire in 10 to 30 days) showing the remaining balance and per diem interest. The new lender will order an appraisal, which values the property in its improved condition if renovations are complete, so finish the work and stage the property before the appraiser walks it. You’ll complete the Uniform Residential Loan Application (Fannie Mae Form 1003) and, for conventional loans, provide two years of personal tax returns, recent bank statements, and documentation of any additional income.10Fannie Mae. Uniform Residential Loan Application (Form 1003) For a rental, add current leases, a rent roll with payment history, hazard insurance, a preliminary title report, and the settlement statement from your original purchase.
If You Can’t Refinance Before the Note Matures
This is the risk that keeps investors up at night. If your hard money note matures and permanent financing isn’t in place, most lenders charge a default interest rate significantly higher than the original, plus late fees on missed payments. The lender holds a deed of trust or mortgage and can start foreclosure.
Some lenders offer short-term extensions, typically for a fee of 1% to 2% of the outstanding balance per extension period. Availability depends on the lender’s policies and your relationship. If the property has appreciated and you’ve been communicating proactively, most lenders would rather extend than foreclose. If the property has lost value or the project stalled, you have far less leverage.
The best defense is building your refinance timeline backward from the maturity date. If the hard money note matures in 12 months, start the refinance application by month eight or nine. Appraisal delays, underwriting conditions, and title issues each feel minor in isolation and add up fast. Identify a backup lender before you need one, and a late refinance becomes an inconvenience instead of a crisis.