While refinancing is a popular financial venture for owners of primary residences, it's also a widely utilized loan option for owners of rental property. If you're a landlord looking to refinance rental property at a lower interest rate, with the objective of using the extra cash flow to make building repairs and upgrades or to fund additional investment opportunities, you may qualify for a rental property refinance.
As you may expect, refinancing a rental property is subject to a different set of rules than refinancing a primary residence. Here's what you can expect:
Higher interest rates. When you refinance a rental property, expect to pay an interest rate that's 1% or higher than the rates typically offered on a residential refinance.
Higher credit score requirements. If you're self-employed or paid hourly, expect to pay a higher interest rate than your salaried counterpart - even if your credit score is above 700.
A specialized lender. In today's tough economic climate, you'll find that rental and investment lenders are not as plentiful as they were just a few years ago. While traditional lenders may have funded your original loan, you may have to work with a specialized lender for a refinance on this rental property.
Although lending institutions have tightened the reign on investment lending, there are some steps you can take to improve your chances for loan approval:
Make improvements to the property. Even simple enhancements and upgrades can work wonders for increasing the value of your property.
Keep detailed records. Maintain meticulous notes of all rent income and maintenance expenses, so you can corroborate net income to prospective lenders.
Interest rates, terms, fees, and requirements of investment loans vary widely from lender to lender, so it's always best to get multiple quotes from several investment property specialists. While refinancing this property can decrease your interest rate and increase your cash flow, it may not be the best solution for your business venture. Review terms and conditions carefully, or solicit the help of a trusted financial advisor.