How to Refinance a Rental or Investment Property

09.15.2020 | Category: Homebuying

With market conditions at or near all-time lows, it’s never been a better time to explore your options to refinance your rental or investment property. This can be helpful if you’re looking to make enhancements to the property, pay off debt, purchase another investment property or simply want to try and make your loan terms more affordable.

The qualifying criteria and guidelines to refinance an investment property are a bit different compared to a primary residence. Let’s explore what you need to know:

Be prepared for stricter credit requirements - In order to qualify for a mortgage to refinance your investment property, your credit score will need to be in the good to excellent range. Most lenders require a credit score of at least 680 to qualify.

If you’re taking cash out, you need to keep 25% equity in the investment home - Unlike your primary residence where you can pull out up to 80% of your homes equity, with an investment property you can only pull out up to 75% of the equity in your rental home when you’re doing a cash-out refinance. You’ll also need to have more cash reserves on hand.

You can’t use a government backed loan on an investment property - Government backed loans, like VA, USDA and FHA loan programs cannot be used to purchase or refinance a rental property. You’ll have to use a conventional loan to refinance.

As you work with your Mutual of Omaha Mortgage loan officer throughout the refinance process, they will provide you with details on your specific loan terms and options.

Reasons to Refinance an Investment Property

With mortgage rates at historic lows, it’s never been a better time to look at refinancing your investment property or put your equity to work in new ways. In this section, we’ll explore some of the common reasons you may want to consider refinancing:

Lower Your Interest Rate

Interest rates for mortgages are at historical lows, and while interest rates for investment properties will likely remain higher than primary residence rates, there still may be huge savings opportunities available. Refinancing to lower your mortgage interest rate can not only affect your monthly mortgage payment, but it could also save you thousands in interest payments over the life of your mortgage.

Change Your Loan Term

Often when we talk about changing your loan term, we talk about going from a 30-year to a 15-year mortgage term. And while it certainly is possible to shorten your loan term with a refinance, it’s important to remember that you can always refinance your existing loan balance into a new 30-year term. Yes, you will pay more over the life of the loan in interest payments, but it can help to reduce costs on a monthly budget.

If you have room in your budget, refinancing your investment property into a shorter-term mortgage can save you thousands in interest payments over the life of your loan and allow you to pay your mortgage off sooner.

Cash Out Equity

A cash-out refinance replaces your existing mortgage loan with a new loan. The new mortgage loan amount is greater than what you owe on your current mortgage. This allows you to cash out a portion of the equity that you’ve built within your investment property. Equity is the difference between the value of your rental home and the amount you still owe on your mortgage loan. When you do a cash-out refinance loan on an investment property you can only pull out up to 75% of the equity in your home. These funds are often used for home renovations, college tuition or to pay off high-interest credit card debts.

The cash that you take out of your home can be used for a variety of purposes, but two that are often cited are:

Finance Another Investment Property - One of the best ways to put the cash in your home to work is to use it to invest in another property. By expanding your real estate portfolio, you have the ability to be able to generate additional revenue.

Make Home Improvements - If you use your investment property to generate rental income, making home improvements may give you an opportunity to charge more for your rental. Improving the livability and amenities within your space can be a great way to put the equity that you’ve built within your home to work. Often renovations can increase your home's value and can make long term renters feel good about staying in the space.

Our experts at the Mutual of Omaha Mortgage Refinance Center can explain in greater detail the process for refinancing your investment property and explain all of your options.

Steps to Refinance your Investment Property

Applying to refinance the mortgage on your investment property is very similar to your purchase experience. The process generally starts by filling out a home refinance application. Once your application has been submitted, one of our refinance specialists will review your application, discuss your goals, and present refinance options for you to review.

Once you decide to move forward with your refinance, you’ll work with your loan officer to select a loan product and lock in your mortgage rate. You will also be asked to provide documentation about your assets, liabilities and income to qualify for your new mortgage. After successfully completing your application, your loan file will go through the underwriting process and go to closing, just as it did when you bought your home. Our team at Mutual of Omaha Mortgage will guide you through the entire process and work to make your refinance as seamless as possible.

Have Questions About Refinancing Your Rental or Investment Property? We Have Answers

Mutual of Omaha Mortgage is glad to have the opportunity to refinance your investment property, and we can’t wait to get started on your application process. Give us a call at 1-800-24-RATES or fill out the refinance form to get started.