Putting Investment Property Capital to Use
Refinancing for primary residential (owner-occupied) residences is gaining traction, but so are cash out loans for investment property.
Although it was hard for them to come by only a few years ago, many borrowers today give investment property owners a opportunity to cash in on the value of their non-owner-occupied properties.
When you’re someone who earns rental property revenue, perhaps cash-out refinancing might be a perfect option for you. Cash out refinancing could help you increasing your rental income, for example, if the cash is used to develop the house. Many cash out refinancing borrowers lower their cost when taking cash out, increasing their positive cash flow.
Here’s everything you need to learn about cash out refinancing laws when they relate to investment property, and whether you’re a successful applicant.
Will you have equities in your rental property?
As in any cash out refinancing schemes, the more money you have, the more you will be able to apply and enjoy the rewards of a new loan. In the case of non-owner-occupied refinancing, the majority of borrowers will lend up to 75% of the total value of the home, the maximum amount set by Fannie Mae. In rare instances, you might see borrowers that go up to 80 percent, but these are typically the bank’s exclusive lending services for which they charge a higher rate.
In other words, in order to make a cash out of refinancing that is worth your time, you need to be in decent shape before you get going. Rental properties with 30 to 40 percent equity are the safest cash out applicants. Owners who bought a few years ago might even lower their rate when taking cash out.
Non-owner Occupied Cash Out Refinancing Rules
Here are some new rules and guidelines for cash-out refinancing on rental properties as set by Fannie Mae:
- The average loan-to-value is 75% for 1-unit properties and 70% for 2-to 4-unit properties. These maximums are reduced by 10% for flexible mortgage rates.
- If the property has been listed for sale in the last six months, the maximum amount for LTV is 70%.
- Properties will not be listed for sale at the time of applying for a loan.
- The house is not liable for refinancing in cash if it has been acquired within the last six months. There is an exemption for properties that conform with the Deferred Funding Criteria.
Delayed Lending Rule: a rental property that has been acquired within the past six months is liable for refinancing in cash if: the current debt balance is no more than the initial selling price plus closing costs.
- No mortgage lending was used to buy, unless the loan was for another house.
- The deal was arms-length, indicating that, in addition to the sale itself, the purchaser did not have a pre-existing partnership or financial interest in the sale.
- The seller shall have a full Closing Report (final payment statement) indicating the selling price and other aspects of the deal.
Non-Owner Occupied Cash Out Refinance: Better For Over-Average Applicants
Cash out loans are dangerous business for borrowers, particularly for those who do not live in the homes they refinance. That’s why the requirements are stringent, so you should expect more paperwork than you can expect from the owner-occupied with no cash out of refinancing.
For starters, applicants must have a good credit score and six months’ worth of savings to support the lease on their residential and primary residences.
Applicants may also need to request tax records, leasing arrangements and other records on income from land. Ultimately, if you already have more than four secured assets, certain borrowers will not be able to approve your loan.
Is A Cash Out the Option to Refinance Your Investment Property?
If you believe you have enough liquidity, satisfy investor standards, and gain from a decrease in interest rate, there are only a few more things to remember before you go on with cash out refinancing.
First of all, figure out how much the bill will increase, if any, by applying principal to the loan balance. Can your rental income compensate the increase?
Often ask that you’re purchasing more residential property. Taking on extra debt may have an effect on your qualifications for potential loans.
And, as it will take time to see a return on your refinancing, make confident that your cash out loan will help you in the long run, not simply to get more cash in the short term.
You will ought to closely examine the terms of the loan and make sure that the investment priorities make sense. Specific borrowers would have varying lending terms for non-owner-occupied refinancing, including flexible interest rate vs. fixed rate. When you opt for an adjustable interest rate, you need to be very sure that you will be able to manage the volatility that can occur. That’s why most investment property owners want a fixed rate.
Where To Apply For Rental Property Cash Out Refinance
After you have taken all of the above into account, you can find that cash out refinancing on your investment property will help you buy more rental homes or develop existing properties.
The trick to this option — as for every refinancing — is either to the your monthly payments quickly or to put more cash flow into your wallet over time. If a non-owner engaging in cash out refinancing has one of those consequences, then you can talk to a lender who specializes in these loans.
Many of today’s borrowers offer cash out refinancing on rented properties on comparable terms. You should get going with your application right now. A lender will pre-qualify you and send you a rate and payment quote, which is the first step in ensuring that this form of refinancing is the right decision.