You can still refinance a home that you rent to tenants, even if you never called that building your primary residence. However, new restrictions on mortgage funding make it more challenging than in previous years to find a lender willing to refinance your investment property. By following these four tips from financial experts, you can lower your refinance rates or cash out some of the equity in your rental home.
Improve and appraise the property. Stronger refinance rates often hinge on the amount of equity in your investment property. Making simple improvements to fixtures, appliances, and exterior presentation can often raise your property's appraised value. Depending on your financial situation, a higher property value can eliminate the need for expensive mortgage insurance while qualifying you as a less risky borrower.
Maintain solid records on rent income and maintenance expenses. Few lenders refinance mortgages in today's market based on stated income, even if your existing mortgage is a stated income loan. Like a small business owner, you will have to prove net income to prospective refinance partners. Landlords with long term leases and track records of maintaining strong relationships with tenants tend to find refinance deals more quickly than speculators.
Prepare to pay more. According to mortgage industry analysts and financial planners, most banks charge as much as a full point in additional interest for investment property. Experts note that absentee owners have less to lose during a foreclosure than traditional homeowners, even if tenants are evicted during the process. Although you can always bargain for a better rate, keep in mind that you won't get the lowest rate printed in today's paper.
Get multiple mortgage quotes from investment property specialists. After flushing so many failed house flipping projects from their portfolios, many mortgage lenders are reluctant to finance investment property. Use online mortgage quote generators as well as personal connections to get the broadest possible range of quotes. A mortgage company specializing in the rental market may offer you a better refinance rate than typical lenders.
If you have recently refinanced your own home, remember that it may take longer to complete a refinance deal on your investment property than it does for owner-occupied houses. In addition, some rental properties already financed or serviced by Freddie Mac or Fannie Mae may also qualify for government-backed refinancing programs. With patience and focus, you can use today's lower refinance rates on rental property to save money in the long run.
About the Author:
Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.
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