Many people secure a hard money loan for real estate with the intent of buying an off-market deal, flipping a home, cashing out for quick business needs, or paying off a note that is coming due. However, sometimes circumstances make it difficult to refinance the loan, leaving borrowers feeling stuck between a rock and a hard place. If you’re looking to refinance out of a private loan, there are a few important steps you might need to take before you’re able to get a traditional loan.

Fix up the property.

Traditional banks have certain requirements for the condition of a property in order to get a loan. If you bought a fixer-upper, you’ll have to do some of the fixing up before you can refinance. In order to qualify for a conventional loan, the property must be “safe, sound, and structurally secure,” so prioritize your improvements based on these factors. You must also have a certificate of occupancy and no code violations, so be prepared to tie up any necessary loose ends. 

Make tenant improvements.

If you own a commercial property, make the types of tenant improvements that will make it easier to rent to the types of tenants you are seeking. Some examples of tenant improvements include painting; installing lighting, flooring, and drop ceilings; and adding walled offices, a break room and kitchen, additional bathrooms, and conference rooms.

Most conventional lenders won’t provide loans for commercial properties that aren’t occupied. Ideally, rent out the space to make it more viable for a conventional loan. This might require you to make certain improvements after the space is occupied so you can get a rental agreement in place before refinancing.  

Improve your credit.

The minimum credit score requirement for a conventional loan is 620. If your score doesn’t meet the criteria, work on improving it so you can refinance. Some strategies you can use include:

  • Get a free copy of your credit report to see where you need to improve.
  • Build a history of on-time bill payments.
  • Keep credit card balances at 30 percent or below your credit limit, ideally as low as 10 percent.
  • Ask for a credit limit increase to get your balance percentage down.
  • Avoiding applying for new credit because inquiries from new creditors can temporarily lower your credit score.
  • Keep old credit cards open, even if you don’t use them.
  • Consider debt consolidation.
  • Monitor your credit score so you know how you’re doing.


Consider working with a credit repair company to help you knock off items that have the largest impact on your credit. Getting guidance from a professional can help you prioritize your efforts so you can qualify for a traditional loan more quickly. 

File your taxes.

Conventional lenders base decisions on your tax returns, so if you need to get caught up on filing, now is the time. Gather the tax documents you have to see what’s missing. You might need to request missing documentation from an employer or the IRS to fill in the gaps. Work with a professional tax preparer to ensure accuracy and completeness. Be prepared to pay penalties and interest charges for any late payments or filings. If the cost of amending your taxes to correct your underreported income is minimal, that might be enough to get you above the debt-to-income hump, so it’s worth the effort if you’re trying to refinance out of a hard money loan. 

Consider a different hard money loan.

Some of these steps could take a lot of time, so have a plan B for refinancing your current hard money loan. Socotra Capital offers quick closes for those who are unable to exit their loans now, allowing you to refinance into a flexible private loan. Because our loans are based on equity, not credit scores or tax returns, you might be eligible even if you don’t qualify for a traditional loan. Private loans also don’t have the same requirements about the condition of the property as conventional banks, so you might be able to avoid or delay investing in improvements. 

If you would like to learn more about hard money loans and how you can use them for flipping homes and a broad range of other real estate investments, read The Borrower's Guide: Fix-and-Flip Hard Money Loans today.