Can You Refinance An Investment Property?
Refinancing an Investment Property
If you own an investment property, you might be wondering whether you can refinance it like your primary residence. The answer is yes-- but it might be somewhat more expensive to do. Since investment property home loans are considered high-risk than primary home loans, you may have to jump through a few hoops to get a lender to go through with your refinance.
Benefits of Investment Property Refinancing
Refinancing an investment property can bring serious financial benefits-- especially if you’re currently renting out the property. Since a refinance at lower interest rate can lower your monthly payments, it can boost your monthly rental income-- improving your ROI, and (most likely) making you richer.
Requirements for Refinancing an Investment Property
Like we just mentioned, lenders see investment property mortgages as riskier than primary home mortgages-- since, if you get into a financial pickle, you’re more likely to stop paying the mortgage on your investment property than the mortgage on your primary home. Therefore, interest rates are higher-- usually by 0.5% or more, so you’ll need to take that into account when deciding if refinancing your investment property is really a smart choice.
In addition to having higher interest rates, investment property refinancing usually comes with stricter loan-to-value (LTV) requirements. Remember, the loan-to-value ratio is simply the size of the mortgage loan divided by the value of the property. So, if your property is valued at 30 The higher LTV, the riskier the loan, and, in most cases, lenders won’t allow refinancing for investment properties with an LTV of above 75%.
While LTV is important, it’s not the only thing that lenders will look for. Just like for a regular home loan or a primary residence refinance, lenders will want to check out your credit score, your debt-to-income ratio (DTI), and your overall income to determine whether they’ll allow you to refinance your investment home. Plus, in some lenders may also require borrowers to have 6 months worth of mortgage payments saved up in order to reduce the risk that you’ll default on your loan.
Rental Income Documentation is Essential for Refinancing Investment Properties
If you’re getting rental income from your investment property, you’ll likely want to be able to count that as part of your income when you apply for your loan-- but you might not be able to include it unless the tenants have been there (and have been paying) for at least 24 months. No matter what, you’ll need to have detailed documentation of when and how they’ve paid you in order for a lender to actually count your rental income as income.
HARP Refinancing is Also Available for Some Investment Properties
If the original mortgage on your investment property is guaranteed by Fannie Mae or Freddie Mac, you may also qualify for HARP refinancing. Like other kinds of investment property refinancing, HARP refinancing may be able to help you lower your monthly payment and reduce your interest rate. But, unlike most other types of refinancing, HARP is available to borrowers with little to no equity in their home, and, in most cases, doesn’t require underwriting or approval. The HARP program has been extended several times, but right now, is slated to expire on December 31st, 2018, so if you’re interested in a HARP refinance, you might want to move fast.