If your investment property is mortgaged, then it might be time to consider a refinance. Refinancing can lower your interest rate, reduce your monthly costs, and boost your bottom line as an investor. However, rates can also be higher, so you\u2019ll want to compare your options before moving forward.<\/p>\n
Here\u2019s what you need to know about refinancing investment property: <\/b><\/p>\n <\/a><\/p>\n These are some of the most common reasons you may want to refinance your mortgage<\/a>, and why they might benefit your situation.<\/p>\n If market rates are lower than the initial rate you qualified for on your loan, then refinancing can help you lower your interest rate. That means a lower monthly payment, a bigger margin between your tenant\u2019s rent and your mortgage, and more cash flow.<\/p>\n Refinancing to a longer-term mortgage can be another way to lower your monthly payment<\/a>. If you only have 15 years left on your loan, for example, and then you refinance into a new 30-year loan<\/a>, your balance is then spread out over many more years and months, thus lowering your payment. Keep in mind though that a longer term means you may pay more interest over the life of the loan.<\/p>\n You can also refinance into a shorter loan term, which would allow you to pay off your mortgage sooner<\/a> and with less interest paid over time.<\/p>\n In some cases, you might want to refinance to change your loan type. For example, if you have an adjustable-rate mortgage, you may want to refinance into a fixed-rate loan to keep your rate from fluctuating. Alternatively, you can also refinance to an ARM mortgage<\/a> from a fixed-rate loan to save on monthly costs. ARM rates are generally lower at the beginning of the loan.<\/p>\n If you\u2019ve built up a good amount of equity in your home, then you might qualify for a cash-out refinance<\/a>. This lets you take out a loan larger than your current balance, and then keep the difference in cash. You can use those funds in many ways \u2014 like for your business or otherwise.<\/p>\n Learn More: Cash-Out Refinance on an Investment Property: How It Works<\/a><\/strong><\/em><\/p>\n If your refinance lets you lower your monthly payment or cash in on your equity, you can then use that freed-up cash to make the kind of investments that increase the income your property creates. You can update the property, repair items that need to be fixed, or add amenities that will justify a higher rent.<\/p>\n Find Out: How to Refinance Rental and Investment Properties<\/a><\/strong><\/em><\/p>\n You can also use the additional cash your refinance creates to fund additional investment properties. Use your cash-out refinance funds as a down payment on a new property or to cover closing costs on your next loan. You could even use them to pay for rehab costs on a fix-and-flip investment.<\/p>\n The money you free up through refinancing can also go toward other expenses \u2014 personal ones like vacations, college tuition, medical bills, or your retirement efforts. You could also use it to pay off credit cards or other debts.<\/p>\n Read More: <\/i><\/b>Cash-Out Refinancing vs. Home Equity Loan<\/i><\/b><\/a><\/p>\n <\/a><\/p>\n Refinancing an investment property works much like applying for your initial mortgage loan. You\u2019ll need to shop for a lender, fill out an application, go through underwriting, and close on the loan.<\/p>\n Here\u2019s how to refinance<\/a> your investment property, step by step:<\/p>\n Every lender has different mortgage refinance rates<\/a> and fees, so it\u2019s important to compare several options before deciding who to go with (Credible can help here).<\/p>\n You\u2019ll need a good amount of documentation to refinance your investment property. Essentially, you\u2019ll need anything that pertains to your income, assets, and personal wealth.<\/p>\n You\u2019ll need the above documents as you fill out your chosen lender\u2019s application. They\u2019ll use it to evaluate your risk as a borrower, determine if you qualify for the loan, and set your interest rate. They\u2019ll also pull your credit report once you\u2019ve submitted the application.<\/p>\n Once your application is processed, you\u2019ll want to lock your interest rate<\/a> to ensure it can\u2019t rise before you close on the loan. Lenders\u2019 lock periods vary, but they usually safeguard you for around 30 to 60 days. You may have to pay a fee if you want a longer lock period.<\/p>\n As your lender works to underwrite your loan, they might request other pieces of information or documents along the way. It\u2019s important you respond to these quickly and produce any documentation needed ASAP. The longer you take to respond, the more it could delay your loan closing.<\/p>\n Finally, your lender will assign you a closing date. This is when you\u2019ll sign your documents, pay any closing costs, and finalize the loan. In many cases, refinances can be done at your property, with just a notary at the kitchen table.<\/p>\n <\/a><\/p>\n Lenders tend to be more strict when it comes to financing investment properties and second mortgages<\/a>. That\u2019s because the risk of default is higher. Typically, a property owner is more likely to stick it out with their personal home than an investment property in hard times.<\/p>\n Because of this, lenders require you to have a good credit score, a low and stable debt-to-income ratio<\/a>, a bigger down payment (or more equity in the home), and more in cash reserves to qualify for an investment property refinance.<\/p>\n <\/a><\/p>\n You and your property will need to meet certain requirements to qualify for a refinance<\/a>. These requirements will vary by lender and loan program, but the below chart offers a good high-level look at what sort of standards you can expect to be held to:<\/p>\n\n\n
Advantages to refinancing an investment property<\/h2>\n
Lower your interest rate<\/h3>\n
Lower your monthly payment<\/h3>\n
Pay off your mortgage faster<\/h3>\n
Change the type of loan you have<\/h3>\n
Cash in on your equity<\/h3>\n
Enable increase of rental income<\/h3>\n
Pay for additional investment properties<\/h3>\n
Cover other expenses<\/h3>\n
How to refinance an investment property: Step-by-step<\/h2>\n
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Step 1: Shop for a lender<\/h3>\n
Step 2: Compile your financial documents<\/h3>\n
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Step 3: Submit your application<\/h3>\n
Step 4: Lock your interest rate<\/h3>\n
Step 5: Work with your lender through underwriting<\/h3>\n
Step 6: Close on your loan<\/h3>\n
What lenders are looking for when refinancing<\/h2>\n
How to qualify for an investment property refinance<\/h2>\n