How to Refinance a Rental Property
1. You're going to likely pay a higher interest rate than a traditional mortgage.
2. You'll have stricter loan-to-value requirements.
3. Your lender will have stringent qualification standards that must be met.
4. You will likely need to shop around for the best rates.
If your credit score is below 660 right now, then work toward improving your credit instead of trying to refinance because you won't likely be approved and any hard credit inquiry will likely lower your credit score even more.
If you are ready to refinance, then here are the four considerations you need to keep in mind right now to make the process as effortless as possible. If you don't meet these four qualifiers, then don't waste your time trying to get a better interest rate until you can.
#1. Get Equity Put Into Your Property
Today's lenders are hesitant to lend money to a property owner that doesn't have much at stake. If you don't have a cushion of equity in a property, then you could realistically walk away from that investment and be done with it for good. Most lenders today will not refinance a rental property if your equity is less than 25% and if you've got a second mortgage on the property; your odds are even lower.
#2. The Income From Your Rental Doesn't Always Count
One of the assumptions that landlords make is that the income they receive from their rental property counts towards the refinancing guidelines for a house. If you're renting to family, this will likely be completely discounted, as it would with a new tenant who has just started renting the property. At best, unless you are a full-time property investor with an established record of success, you're only going to get a portion of your rental income counted.
#3. Mortgages Are Often Limited
If you already have multiple mortgages out on multiple properties, then you'll likely struggle to get a refinancing package put together. Most lenders today won't allow one borrower to have more than four mortgages in total. This is partially due to a desire to limit any appearance of impropriety when it comes to loans that are issued by the government.
#4. Be Upfront About Your Intent
Because there are so many stipulations to the refinancing market for mortgages today, a number of property owners attempt to occupy their homes for a period of time to give the appearance that it is their primary residence so a package can get through. The only problem is that this could be considered to be loan fraud. You can intend to do a lot of things and then not have them come through, so many lenders need at least one year of established residency to start the refinancing process if you don't meet the other equity qualifications.
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