Hard Money to DSCR Refinance: Planning the Takeout

What is a takeout refinance?

The takeout is the refinance that repays a short-term hard money loan with long-term financing. For most fix-and-flip, bridge and BRRRR investors, that long-term loan is a DSCR loan qualified on the rent the property now earns. The takeout is not an afterthought: it is the reason the hard money loan was structured the way it was.

Plan the takeout before you take the hard money loan. Know the DSCR lender’s seasoning rules, the post-renovation rent and the payment the property can support, so the exit is lined up before the short-term loan matures.

Which conditions must a takeout refinance meet?

• Seasoning. Lenders set how long you must own the property before they use a new appraised value instead of your purchase price plus documented improvements.
• Renovated and rentable. The property must be habitable, insurable and meet any local rental or inspection requirements.
• Leased at market rent. A signed lease at market rent, or a supportable market rent, is the basis of the ratio.
• Documented improvements. Keep receipts; some lenders consider documented costs.
• A passing ratio. The rent has to cover the new payment. Compare supported rent with the full proposed payment as described in the DSCR exit guide.

How does the handoff between loans work?

Once the property meets the conditions, you apply for a DSCR loan and use the proceeds to pay off the hard money loan at closing. The new loan is qualified on the rent rather than on your personal income, and the property becomes a long-term hold. If the plan is to sell instead, the sale proceeds repay the hard money loan directly.

The handoff is smoother when the two loans are planned together. A broker who understands both the hard money side and the DSCR side can line up the seasoning, the lease and the valuation so there is no gap between the loans. See the DSCR vs. hard money comparison.

What can delay a takeout refinance?

The most common delays are a property that is renovated but not yet leased, an after-repair value that comes in below plan, or a rent that does not cover the payment. Each of these is easier to fix before the hard money loan is made than after. Buy on a conservative after-repair value, keep the renovation scope realistic, and test the rent against the refinance payment early.

If the numbers do not work, a smaller loan amount, a larger down payment or a property with lower carrying costs can bring the file into range.

How can a broker help compare your options?

Hard Money Loan is a Loan Daddy LLC brand, and Loan Daddy LLC is a mortgage broker, not a lender. We arrange both the short-term hard money loan and the long-term DSCR takeout through wholesale lenders, and plan the handoff from the start. Send the property, the rent and the loan amount through the application.