Top 6 things to consider when refinancing investment property

Posted by  on Jun 11, 2012

Are you feeling squeezed by mortgage payments on an investment property and other financial obligations? Or maybe you financed an investment property with an adjustable-rate mortgage (ARM) and want to refinance into a fixed-rate loan before the interest rate resets. Refinancing a mortgage on an investment property depends on several factors:

  1. How much equity do you have? Refinance mortgage lenders usually require you to have more equity in an investment property than they would for the home in which you live. You might be able to get away with 25 percent, but you may need as much as 50 percent equity for approval. If you've lost a lot of equity or are underwater on your current mortgage, don't expect to get approved for a refinance.
  2. What is your mortgage rate? Refinance rates are usually higher for investment properties than for primary or secondary homes. If you originally took a mortgage loan to buy the property as a primary residence but later turned it into a rental, you may have a tough time getting a better mortgage rate.
  3. Do you have a home equity loan? In order to refinance an investment property, the mortgage lender may require that the home equity loan be paid off first.
  4. Do you have enough income? Mortgage lenders want to see documentation of cash flow for the property and will ask for a copy of your tax return. They also look at your personal income to see if you can handle mortgage payments if the investment property remains vacant. You may have to provide copies of rental agreements to show what kind of money is coming in.
  5. What is your credit score? You'll need a decent credit score to get approved for refinancing. Mortgage lenders have gotten much tougher on loan applicants, and those with credit scores above 720 usually qualify for the best refinance rates. If you aren't sure what your credit looks like these days, you can get your credit scores and reports at FICO.
  6. How many investment properties do you have? Obviously, it is going to be easier to refinance one investment property than a bunch of them. If you own multiple properties, you may have to do quite a bit of comparison shopping to find a mortgage lender willing to work with you. Fannie Mae, for example, has special restrictions for those owning more than 4 properties.

Getting approved for refinancing

Not all mortgage lenders may be willing to work with you to refinance investment property. Be prepared to provide plenty of information about your situation when being evaluated for refinancing. Mortgage lenders are definitely cautious about approving mortgages in this economic climate, but that does not mean that you can't get approved, especially if you have good credit and can provide all the necessary documentation.


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