Refinance a Hard Money Loan to Permanent Financing — The Stabilization Playbook

Refinancing hard money to permanent is one of the most common transactions in commercial and residential investment real estate. Hard money is short-term, expensive, designed to be paid off — permanent financing is long-term, cheaper, designed to be held. This page walks the stabilization criteria, the four main permanent loan paths, and the 60–90 day playbook. For broader bridge context see commercial bridge loans; for what to do if maturity is too close see hard money maturing.

Why Refinance Hard Money to Permanent

• Rate compression: Hard money 10–14% → permanent 5.5–8%. On a $1M loan, ~$45K–$65K annual interest savings.
• Cash flow improvement: Lower payments on permanent enable cash flow for distributions, additional acquisitions, or reserves.
• Maturity escape: Hard money is 6–24 month term; permanent is 5–30 year amortizing. Removes the recurring maturity-refi pressure.
• Recourse reduction: Most hard money is recourse with personal guarantee. Many permanent options (agency, CMBS) are non-recourse with bad-boy carve-outs only. Materially less personal risk.
• LTV optimization: Hard money typically funded at 50–65% LTV of as-is value (conservative). Permanent typically up to 70–80% LTV of stabilized value (often higher). Refi often pulls cash out at close.

Stabilization Criteria for Permanent Qualification

Permanent lenders won't fund non-stabilized properties. Stabilization criteria vary by asset class:

Multifamily (5+ units)

• Occupancy: 90%+ for 90+ days minimum at most agency lenders; some require 6 months at 90%+. Freddie SBL is more flexible (sometimes 85%+); Fannie tighter.
• NOI: T-3 (trailing 3 months) NOI matches T-12 (trailing 12 months) within reason — lender wants to see NOI is stable, not artificially boosted.
• Rent comps: Achieved rents support pro-forma; concessions and lease-up specials wound down.
• Property condition: No major deferred maintenance; Phase I environmental clear; permitted improvements complete.

Commercial real estate (office, retail, industrial)

• Occupancy: Varies. Office/retail typically 85–90%+; industrial 90%+; warehouse 80%+. Lender-specific.
• Lease maturity diversification: Major tenants not all rolling within 12–24 months of permanent loan term.
• Tenant credit: Anchor tenants creditworthy; lease terms documented.
• NOI sustainability: T-3 NOI >= proforma NOI × 90%.

Single-family rental / small multifamily (1–4 units)

• Occupancy: Currently leased to qualified tenant with signed lease.
• Rent vs market: Lease rent within 10% of market rent comp.
• DSCR: 1.0x+ at proposed permanent payment (some DSCR lenders accept 1.0x; most prefer 1.10–1.25x).
• Property condition: Move-in ready, no major deferred maintenance, current with all permits.

Path 1: Agency Multifamily (Best Rates for Stabilized 5+ Unit MF)

Freddie Mac, Fannie Mae, and FHA provide the cheapest permanent financing for stabilized multifamily.

• Freddie Mac SBL (Small Balance Loan): $1M–$7.5M. 5/7/10-year fixed at ~5.75–6.75%, 30-year amortization, non-recourse with carve-outs. Originated by Arbor, Greystone, Walker & Dunlop, others. 60–75 day close from application.
• Fannie Mae Small Loan / Conventional DUS: $1M+ (better pricing at $5M+). 5/7/10/15-year fixed at ~5.5–6.75%, 30-year amortization, non-recourse. Top DUS lenders: Walker & Dunlop, Berkadia, Greystone, Newmark, CBRE, JLL.
• FHA 223(f): 35-year fully amortizing at ~5–6% fixed, up to 85% LTV, non-recourse. Cheapest available financing for stabilized MF. Slow: 6–9 months to close. Best for long-term hold strategies where rate is paramount.
• Min loan size: Freddie SBL $1M; Fannie Small Loan $1M; FHA $3M.
• Qualifying: Sponsor experience required; FICO 680+; stabilization criteria above; debt service coverage 1.20–1.30x+.
• Best for: Stabilized 5+ unit multifamily, long-term hold, sponsor wants non-recourse.

See CRE permanent rates 2026.

Path 2: Bank Conventional CRE (Most Flexible)

• Rate: 7–8% fixed for 5- or 10-year fixed periods, 25-year amortization with balloon. Some banks offer fully amortizing 25-year.
• LTV: Up to 75–80% on stabilized.
• Recourse: Usually full recourse at community/regional banks; non-recourse at money-center banks for stronger borrowers (typically pricing 50–150 bps higher).
• Min loan size: $500K typical; larger banks $1M+.
• Qualifying: 680+ FICO, 1.25x+ DSCR, stabilization criteria above. Existing deposit relationship matters — relationship pricing is real.
• Timeline: 45–75 days at existing bank; 60–90 days at new bank.
• Best for: CRE other than multifamily, mid-size deals ($1M–$15M), relationship borrowers, value-add transitional that don't yet fit agency.

Path 3: SBA 504 (Owner-Occupied Only)

If the property is owner-occupied (51%+ owner-use), SBA 504 is materially cheaper than bank conventional.

• Structure: Bank first mortgage (50%) at 7–9% + SBA/CDC second (40%) at 5.5–6.75% fixed 20- or 25-year + 10% borrower equity.
• Blended cost: ~6.5–7.5%.
• Owner-occupancy requirement: 51%+ on existing buildings; 60%+ on new construction.
• Timeline: 60–90 days.
• Best for: Owner-occupied CRE acquired with hard money + bridge that's now your operating business location.

Path 4: DSCR Rental Loan (1–4 Unit Held Rentals)

For single-family or small multifamily (1–4 unit) properties held as rental investments, DSCR loans are the standard permanent take-out.

• Rate: 7–9% fixed 5/7/10-year fixed; 30-year amortization.
• DSCR sizing: Loan sized so monthly rent ÷ monthly debt service (PITI) is at least 1.0x (some lenders 1.10–1.25x for best pricing). No personal income verification.
• LTV: Up to 80% on purchase; 75% on rate-and-term refi; 70% on cash-out.
• Min loan size: $100K typical.
• Qualifying: 680+ FICO (better at 720+), property currently leased to qualified tenant, lease rent within 10% of market rent comp, no personal DTI requirement.
• Top DSCR lenders: Visio Lending, Lima One Capital, Kiavi, Easy Street Capital, Anchor Loans, Investors Bank, regional DSCR specialists.
• Timeline: 21–45 days — faster than agency or bank.
• Best for: Fix-and-flip-to-hold strategy (BRRRR: Buy, Rehab, Rent, Refi, Repeat). 1–4 unit residential held as rental.

60–90 Day Playbook

Day -90: Plan ahead

• Start permanent loan process 60–90 days BEFORE hard money matures. Last-minute refi is the most common cause of bridge extension fees or default.
• Confirm stabilization criteria met or on track. If not stabilized, calculate when stabilization will hit and plan permanent timing accordingly.
• Engage permanent lender or mortgage banker. Get term sheet indicative of pricing.

Days 1–14: Application + diligence kickoff

• Submit complete application package: sponsor PFS + tax returns, subject property T-12, T-3, rent roll, leases, hard money payoff quote, property condition report.
• Order third-party reports: appraisal, environmental Phase I, title commitment, survey if needed.
• If multifamily agency loan: Replacement Reserve and Property Inspection Report (PIR) also ordered.

Days 14–45: Underwriting + approval

• Permanent lender underwrites file. Multifamily agency: DUS lender pre-underwrites, then submits to Freddie/Fannie for approval. Bank: credit committee review.
• Conditional commitment letter issued with conditions to clear before close.
• Address any conditions (additional reports, inspection findings, lease estoppels, etc.).

Days 45–75: Final conditions + close

• Loan documents drafted.
• Borrower's attorney reviews; negotiates final language.
• Insurance binders, entity good standing, final third-party reports cleared.
• Settlement statement prepared.

Days 75–90: Close + payoff hard money

• Close on permanent loan. Permanent lender wires payoff to hard money lender per their payoff quote.
• Hard money lender confirms payoff received, releases mortgage/security instruments within 14–30 days.
• New permanent loan service begins.

If Hard Money Maturity Is Too Close

Permanent loans take 60–90 days minimum. If hard money matures sooner:

• Request hard money extension (most common): Most hard money lenders grant 1–6 month extensions at 0.25–1% extension fee per extension + rate bump of 1–2%. Costs $5K–$20K but bridges to permanent close. See hard money maturing.
• Refinance to institutional bridge (intermediate step): Institutional bridge at 9–11% (vs hard money 12–14%) closes in 30–45 days, buys 12–18 months for permanent.
• Sell instead of hold: If permanent take-out math doesn't work post-stabilization, listing for sale at stabilized value may net more than refi.

What to Watch Out For

• Stabilization stretched too thin. Permanent lenders verify actual occupancy with rent roll + bank deposits. Properties with manipulated occupancy (related-party leases, free rent, paper leases) get caught and declined.
• NOI variance T-3 vs T-12. If T-3 NOI is significantly higher than T-12 average (e.g., rent push, concession burn-off), lender uses lower of the two for sizing. Don't assume best month.
• Cap rate compression on appraisal. Permanent lender uses fresh appraisal at stabilized value with current market cap rate. If market cap rates have moved up, appraisal value may be lower than expected — reduces LTV cap on loan amount.
• Personal credit, recent inquiries. Multiple recent hard pulls (from shopping bridge or hard money) can ding FICO temporarily. Don't apply to 10+ permanent lenders in shotgun — 2–4 targeted applications.
• Prepayment penalties on hard money. Most hard money has 0–1% exit fee. A few include 6–12 month prepayment lock that can cost 3–5% if you exit early. Read your original hard money terms before assuming free payoff.
• Property condition issues found in PCA. Permanent lender's Property Condition Assessment (PCA) catches deferred maintenance that hard money lender didn't require. Reserve for repairs may be required at close, reducing net proceeds.

Get Matched for Permanent Refinance

The fastest path to permanent refi is applying to 2–3 permanent lenders in parallel (agency, bank, or DSCR depending on asset). Get matched for permanent financing — one application connects you with agency, bank, SBA, and DSCR permanent lenders. Also see CRE permanent rates 2026, bridge loan rates, hard money maturing, and CMBS vs life co vs agency.