An investment property can be described as a property someone purchases to rent out and make money. The investment property can either be long-term, where a family uses the property as their primary residence or short-term, where the property is rented as a vacation or travel destination for shorter periods.
Why Do People Refinance Their Investment Properties?
There are several reasons people decide to refinance their investment properties. Some of the reasons include:
- Turn a variable interest rate into a fixed rate
- Get lower interest rates
- Minimize total interest costs
- Lower monthly payments by increasing the repayment term
- Pay off a mortgage sooner by reducing the repayment term
How to Refinance an Investment Property
Refinancing an investment property is less like refinancing residential property. Below are six steps to refinance an investment property:
Ensure You Are Eligible for Refinancing
Most lenders have stricter requirements and guidelines for refinancing investment properties than primary properties. This is due to the assumption of the lender that if a person is struggling financially, then the chances of defaulting on their investment property is high.
Put Together All the Necessary Documents
There’s a lot of necessary documentation for refinancing an investment property as opposed to refinancing a primary residence. Some of the required documents include:
- Personal and business tax returns
- Recent pay stubs
- An IRS schedule E
- Proof of home insurance
- Copies of existing lease agreements
Compare Refinance and Lender Rates
It is essential to understand that not every mortgage lender can refinance an investment property loan. Qualifying requirements, rates, and terms can also vary from one lender to another. As such, it is good to shop around to ensure that you get the best refinance rates in the market.
Submit Your Application
After settling on the best lender, it is time to commence the refinance application process. Ensure you have all the required documents ready to go before starting the application process.
Lock in Your Mortgage Rate
Once the loan application has been submitted, it is good to lock the mortgage rate. This will guarantee a quoted rate for a maximum period of 60 days.
The last step involves closing on the investment property. It is a process of finalizing the details of the transaction.