Refinancing a Rental Property – A Quick Guide

free-refinancing-advice-150x150The prospect of refinancing a rental property can be a scary one. If you’re in over your head, strapped for cash or perhaps you’re even afraid of losing the value within your home. No matter what your reason, something as big as the decision to refinance should be considered with great care. The housing market has changed, and with that, so have considerations in refinancing and the impact such a decision could make on your life. Here are steps to take in order to make refinancing your rental home a more welcomed process.

Refinancing May Be The Wise Choice

Refinancing can be a great thing in allowing you to pay off your mortgage sooner and providing smaller payments made month to month depending on your lender. Refinancing can also allow you to avoid bad credit and build up good credit for future investments. The same can be true for refinancing rental properties. As long as the amount that you save over the lifetime of your loan, is less than your closing costs you have made a wise decision! If you have multiple rental properties, your savings can be even more profound.

Choosing a Mortgage Refinance Lender

Choosing a lender can be a little intimidating, but in order to reach your goal of refinancing you need to be able and willing to explore more than one option.

  • Get a copy of your credit score and credit report. You are entitled to one free copy per year, so head over to and get one. This is a government approved resource and should be used before buying a report from a credit bureau. Make  two copies, one for your lender and one for your personal records as your lender will need this information for your application and proof of documentation is always good in the event that something were to happen.
  • Call your original lender. If you don’t have a lender, talk to those lenders within your bank or credit union and see what they have to offer in terms of refinancing options. It is vital that you write their offers down so you can shop around and compare more effectively.  Ask questions about how exactly this could affect your personal credit, how they could work with your income and ask about a loan estimate based on the value of your home. If they hit you with anything you do not understand, request that things be explained in simpler terms. This allows you to really know what it is you’re getting into. Do a pros and cons list to refer to later with each lender you explore the possibility of refinancing with.
  • Get copies of applicable documents. Monthly mortgage statements, pay stubs and monthly bills will paint an accurate picture for those that are looking to assist you in the decision to refinance. In other words, have the ability to prove your monthly income, any assets you may have as well as your expenditures.
  • Do not be afraid to explore federal refinance programs In the event that you owe more than your home is worth, programs such as The Federal Home Refinance Program are designed to help. Remember, you owe it to yourself to look for a lender that meets your needs. If you are unsure of the options available to you, do not ever hesitate to ask questions in order to have your financial needs recognized, and more importantly, met.

Before You Apply for a Rental Refinance Loan

  • Tell your lender that you wish to refinance your rental property. A few mortgages require the homeowner or renter, as in this case, to live on that property for a set amount of time. Make sure you once again that you state that you are interested in refinancing a rental property to insure that the contract is worded correctly and therefore, valid.
  • Review your credit report.  Make sure all the documentation is accurate.  You will need to demonstrate good credit in order to qualify for a refinance in the first place. If there are any outdated, negative accounts file a dispute with the bureau. Higher credit scores equal lower interest rates! If you have any doubts or questions, remember to call your bank; that’s what they’re there for.
  • Know whether or not you have enough equity within the home. For investment properties, lenders typically give out a loan-to-value ratio at a minimum of 75%. You really want to be sure that your time and effort spent on  your home is well worth it.
  • Be able to show that you have money set aside. Lenders want to see that you are reliable and being able to cover six months (if not more) of interest, principal, as well as taxes and homeowner’s insurance.

The more prepared you are when it comes to refinancing your rental property, the better off you’ll be. Now that you know what it is to be expected, you can go forth and make a sound financial decision.

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