Interest rates are still low, but climbing. For real estate investors, this may be the ideal time to refinance your investment property. It can lead to reduced monthly expenses and more profit. Some investors refinance in order to access equity or restructure payment terms.
Typically, real estate investors are required to meet qualifying standards that are stricter than homeowners who want to refinance their mortgages. That shouldn’t put you off, however. You can still get approved for better rates when you know what you’re doing.
Evaluate Your Finances and Gather Your Documentation
First, you’ll have to make sure you’re in a good financial position to refinance. With the higher risk of foreclosure on investment properties, lenders are going to be strict about what they require. Check your credit score, line up your assets and your liabilities, and get a good financial picture of where you are. You’ll need this type of documentation when you begin shopping for better lending rates.
Your minimum requirements will vary depending on your lender, loan, and other factors such as how many units your property includes.
The documents you’ll likely need to refinance an investment property include:
- Tax returns, at least for the last two years.
- Income documentation, including pay stubs and recent rent receipts. You want to establish an acceptable debt to income ratio.
- Bank statements that reflect a healthy savings.
- Copies of your lease agreements.
- Proof of your landlord and liability insurance.
You will likely have to demonstrate you have at least 20 percent equity in the property you want to refinance. Lenders will also want to see cash reserves of at least six months and an appraisal that matches market rents. If you have more than 10 rental homes with mortgages attached to them, it’s unlikely you’ll be approved for refinancing. Be prepared to prove that you are not disqualified for this reason.
Talk to Lenders in Rexburg
Do some comparison shopping to find the best refinancing rates. Don’t forget your closing costs as well; look for competitive offers there. Not every lender is interested in refinancing investment properties. Talk with your network of real estate professionals and Rexburg property managers. You’re looking for a lender and a list of terms that meet the needs of your investment and refinancing goals.
Keep your expectations grounded. You’re going to find that refinance rates are higher for investment homes than they are for primary residences. You may have to pay for points if you want a cash-out refinance. There are likely to be higher appraisal costs as well. For a multi-family property, you can expect to spend at least $500 for your appraisal, possibly even more than $1,000.
This isn’t something you want to undertake on your own. Surround yourself with professionals so you know you’re getting the best advice. It’s a great time to refinance, but it does take some finesse, especially when we’re talking about investment properties. The process takes longer and there are far more boxes to check off.
We can help you navigate the process. If you need some referrals or additional resources for your Rexburg rental property refinance, please contact us at Jacob Grant Property Management.