With all the buzz lately about mortgage refinancing, a lot of homeowners with rental properties are likely wondering what options are available to them. While it can be slightly more difficult to refinance a rental home, it is still completely possible. Lets face it, if one was going to refinance anything, nows the time to do it!
Today we will discuss three of the most common struggles that present themselves with a rental property refinance . Additionally, we will go over how to avoid these headaches from the start.
1. Equity This can be the biggest problem facing borrowers. Because of the riskiness involved in owning more than one residential property, mortgage lenders usually like to see a "25% or more cushion in order to refinance a loan for a home that the owner does not live in. The reasoning behind this is that a borrower is far less likely to walk away from an investment where they have "skin in the game. So, 25% equity in the non-owner-occupied property you want to refinance is a good ballpark range. Also keep in mind that while lenders can be more lenient with credit scores and cash on hand, the industry rule here usually hovers near a 75% maximum loan-to-value ratio for the new mortgage loan.
2. Rental Income Be prepared that some lenders are hesitant to recognize the full amount of rental income a borrower receives in their total debt to income evaluation. To avoid hassles here, speak with your preferred lender about this specific situation and always keep good documentations of rental payments from your renters. A solid year of payment history from a renter is a good start. Even better is to use a property management company to oversee your rental and make sure it stays occupied by long term rental agreements.
3. Multiple Mortgages Often times mortgage lending companies will limit the number of mortgages one individual can have going at the same time. In certain cases, four mortgages on residential properties is the max, but it is always recommended that one speaks with their individual lender on this. Keep in mind that an individual can own 20+ residential properties and have only two mortgaged properties they are currently making payments on. According to the Four Mortgage Rule, they could possibly get two more residential property loans. The Four Mortgage Rule only applies to active mortgage loans running at the same time, not properties owned free and clear.
There are many things to discuss in regards to what options are available for homeowners and property investors who want to take advantage of the prime buying conditions right now. Give us a call here at Lendem Financial and speak with one of our Rental Refinance Specialists. We can get you on the right path to a better rate in no time at all.
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