Notably, mortgage rates are consistently running at their lows, even if we look at the historical records. Consequently, the majority of people are driving towards refinancing their mortgages again. Craving for refinancing your mortgages brings opportunities to gather & apply for both your primary home and your investment property. If you are the one who is refinancing its investment property for the first time? Then, there are certain things that you must know before refinancing an investment property.
And these are closing costs associated with refinancing, your existing interest rate, and determining the loan type available for refinancing. Moreover, suppose you are feeling exhausted after going through the above information at once. In that case, you must complete the below information. Furthermore, in the information below, you will learn about the best place to refinance mortgages. Plus, about the requirements that banks needed during the refinancing process. So without any further delay, let’s get started.
Needed Banks Requirements For an Investment Property Refinance
Except for some minor differences, the process of refinancing investment property is similar to refinancing a mortgage on your primary residence. Moreover, from the perspective of banks, there are a number of things that banks require during an investment property refinance. And these are:
Good Credit Score
The primary thing is a good credit score, which a bank requires. Having a good credit score can get you a better interest rate that helps you build equity faster and at a lower cost. If you have a bad credit score, it is advised to clean it up or find a business partner with a better credit score.
Stable Debt-to-Income Ratio
It is important to be eligible to pay off debt, as lenders prefer to lend money to those who can pay off debt. Therefore, as a resolution, you must have a good debt-to-income ratio. A percentage of your income goes to paying your monthly debts. Remember, your “DTI” should be 36% or less, but it varies from lender to lender.
Knowledge of What You Want
Knowing the type of mortgage you want is relevant when you approach a lender about refinance investment property. You can make a choice between an adjustable-rate mortgage or a cash-out refinance. Remember, choosing a cash-out to refinance may lead you to leverage your equity to fund costs like improvements.
- No More Than 10 Financed Properties
From 2009 onwards, people can opt for ten financial properties an investor could finance from. Remember not to exceed the limit of 10 when it comes to refinancing your investment property. Financing more properties can lead to more paperwork and a slower approval process.
Higher Equity Thresholds
Indeed, lenders require an investor with a higher equity threshold when refinancing investment properties. Moreover, 75% is a normal loan-to-value ratio on an investment property. And this shows that you must have at least 25% equity in your investment property before you refinance.
Refinance an Investment Property
Besides slight differences, refinancing an investment property and refinancing a primary residence are similar to each other. Also, you may find yourself familiar with most of the process if you are an existing mortgage user. But, if you are new to it or an existing user, then you must have checkout below points before discussing a refinance of an investment property with a bank. So, let’s get started:
Gather the Right Documents
Primarily, it would help if you had legal and all the required documents before initiating the refinance process. Under the legal documents, you must have your income proof, such as pay stubs, tax returns, W-2 forms, business tax returns, and disability or pension income proof. Plus, detailed information about your rental income from investment properties. Ensure to keep a two years record of your tax return along with a Schedule E. The other things the lenders may ask you for are proof of individual ownership of the investment property and proof of assets. Moreover, the other things that explain your current debts and obligations outside your investment property. And these are credit card balances, other loans, and current mortgage statements.
You can proceed with the refinance application process once you complete your paperwork in order. Remember, each bank has different approaches and processes for proceeding.
Lock Your Interest Rate
Once you apply for a refinance, the next step takes you toward locking the interest rate for the loan. Hence, after locking the interest rate on your end, the bank guarantees that the rate offered remains available for a certain period. The locking of a rate lock results in distressing rates going up between the time the offer is submitted and closed. A rate lock is a typical 30 to 60 days period.
As an existing user, you will undergo underwriting during the application process. Moreover, underwriting describes the duration of verifying all of the provided documentation by the bank during the loan process. Once the underwriting is done, the bank issues final approval for the refinance.
The final step tells about the process of closing on your refinance, which is quite similar to closing on a primary residence. And in this process, the cashier may hand you a check to cover closing costs and your identification. Moreover, you will be asked to sign documents like a closing disclosure which will show you a total breakdown of costs and fees.
Find the Right Bank to Refinance Your Investment Property
There are two compatible ways to find the right bank to refinance your investment property. And to know what they are in a descriptive way, follow the downward points:
Ask for Referral
Getting in touch with people to ask for advice and share experience is the best way. Plus, a free-of-cost way to find the right bank for investment property refinances. If you are to spend some, opting for an advisor is a risk-free and safer option. In a nutshell, gather or acquire as much information as possible to keep things going smoothly.
Do Your Research
Undoubtedly, the internet has sufficient information to do your research regarding finding the right bank to refinance your investment property. Along with plenty of information, you will also find reviews and first-hand accounts of similarly situated investors linked with a particular bank for refinancing. The bottom line is that you should gather information and search for the best deal offers with the highest customer service rate.
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