Update: Total Mortgage is still closing loans during the government shutdown.
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Refinancing Your Investment Property

With interest rates as low as they are, now is a great time to look into refinancing—even if your property happens to be an investment property.

For most people, the goal of a refinance is to lower their monthly payment. That’s nice for  occupying homeowners, but it’s extra nice for real estate investors keeping an eye on their bottom line, since they can continue to charge market value rent while chipping away at their own monthly costs.

That being said, there are still some differences between refinancing a primary residence and one you rent out.

LTV Requirements

LTV stands for loan to value ratio, which means exactly what it sounds like. The higher the percentage, the closer your loan amount is to the appraised value of your property.

Of course, the higher that percentage, the less equity you have built up in your property, which often makes you seem like a greater risk to a lender. For this reason, most lenders prefer investment properties to have an LTV of 75%, or even lower in certain situations. For instance:

 

 Rate & Term Refinance

Cash-Out Refinance

Single Family

75% LTV

75% LTV

2-4 Unit

75% LTV

70% LTV

Interest Rates

In case you haven’t already guessed, lenders consider investment properties riskier than primary residences. It makes sense when you think about it—if you’re running low on cash, which mortgage payment are you more likely to make, your family home or your rental property?

Lenders take this risk factor into consideration when they do the math on your interest rate. Often, the rate they offer for your refinance will actually be around .5% higher than it might be for a primary residence. However, this will vary from lender to lender. 

Other Requirements

If you’ve already gotten a mortgage, then you already know what sort of documents and information will be required of you during a refinance. They include:

  • Proof of income
  • Copies of your tax information
  • Proof of homeowner’s insurance
  • Documentation of investments and savings
  • A current credit score (aim for over a 660)

Some lenders may have other requirements, like six months or more of mortgage payments already in the bank and documentation that proves rental income. Also be prepared for a higher appraisal fee.

Is a Cash Out Refinance Right for You?

For those looking to free up money to invest in more properties, a cash-out refinance might be worth considering. It’s pretty much exactly what it sounds like—instead of refinancing into a loan for the same amount, you refinance into a slightly larger loan, tapping into your equity and turning it liquid.

This is only an option for owners with significant equity already built up in their property, but done correctly, it can be a smart way to get the cash you need to invest.

If you have any questions—or if you’re ready for a quote—give us a call.