A high-interest rate on your rental property is a sign of reinvesting your property. Paying a mortgage in high installments over a long period can be exhausting. Refinancing property helps lower your interest rate with lower installments over a long period. The refinancing property might involve strict requirements and the right documentation to qualify for a loan.
There are reasons why you might consider refinancing your property
- It is an investment opportunity. Money offered by the lender can be used to purchase another investment opportunity, which will double your income.
- Property equity accumulates once you purchase your land and build on it after several years. You can refinance your property at a higher amount than its original value. The profit earned can be used on other investment expenses and debt.
- Adjustable monthly payments. Refinancing investment property is adjustable depending on your agreement terms with your lender. You can choose to extend the repayment period over a long time or shorten the repayment to pay off the loan faster.
- You can use this to renovate your current property, boosting its appeal to new tenants.
Steps to take when refinancing your property
Paperwork. Documents such as W-2forms, homeownership insurance, and income proof are necessary. False or outdated documents can delay or deny you the opportunity.
Apply. This is majorly offered online. Some lenders offer prequalification and preapproval options if you have a good credit score. Apply when ready and keep an eye on the lenders' feedback.
The lender views your application to determine if you qualify for an offer. An offer is then offered. Check on the rates and fees before locking a rate. If you are not impressed with the offer, you can wait till an increase is made.
Underwriting. After applying, underwriting is done to check your documentation, income, assets, and property condition. Underwriting can take a week, if not days.
Close a deal. It's time to finalize the contract and sign a deal with the lender. Carefully go through the contract and inquire for clarifications.
Refinancing documentation
Homeownership insurance. It ensures your home has adequate coverage.
Proof of income; income stabs an assurance that you have a source or multiple sources of income.
Title insurance. Legal ownership of the property is needed for verification and avoids fraud.
Asset information. Blockage account statements, savings, and 401k statements can act as collateral or down payments for unforeseen future expenditures.
W-2 papers and tax returns; this verifies your income history. Self-employed individuals have to show their tax returns and bank statements.
Appraisal; Your lender orders a property appraisal during the refinancing process to evaluate its current value and its income potential in the market.
Refinancing requirements
Your profile lets your lender know that you can pay for your mortgage.
Credit score; A high credit score gives you a good credit history with a more likely good mortgage range.
Equity; when refinancing rental property, the bank must check that the property's value exceeds the current mortgage balance.
Cash reserve; Cash amount that equals up to a year’s worth of mortgage payment is needed. The minimum required is calculated based on the new mortgage payment of the property.
DTI ratio; Debt to income ratio of fewer than 43 % is recommended. It ensures that you do not weigh the burden of too many debts you cannot pay.
Closing cost; Loan amount and location of the property impact how much you are going to pay
