Refinancing can seem like a tedious process with complicated steps and requirements, especially if it’s your first time. Although the process might appear troublesome, there are ways to prepare ahead of time to make the process run more smoothly.  In this article, we will review the ways you can set yourself up for success to refinance your mortgage.

1. Identify refinancing goals

There are numerous advantages and benefits that come with refinancing your investment property, and most people have a specific refinancing goal in mind when they consider their options. Refinancing can save you money through lowering your monthly payment and interest rate that can contribute to you paying off the loan much quicker.  If you choose to ‘cash out’ on your mortgage refinance, you can use those funds to pay off debt occurring high interest or invest it back into the investment property. Identifying a goal and purpose allows you to have a better idea about the kind of loan you will be looking for.

2. Review your options

You’ve decided on a goal, and now it’s time to sit down and review your options. Different refinances will yield different outcomes, so you need to be sure the one you choose is in line with your desired outcome. Are you looking to lower your monthly payment, save on interest, or shorten the life of your loan? You may want to look at Rate-and-Term Refinance. Are you looking to get cash out of your property to pay off debt or investment in other projects? Then we’re looking at a Cash-Out Refinance.

You’ll also want to consider the various facets of the loan you’ll be looking to go after. Will it be a fixed-rate or adjustable-rate loan? What will the length of the loan be? Will you take credits to offset the closing costs?  These are all things to consider when refinancing and questions your loan officer can help answer for you.

3. Assess your financial situation

There are many reasons why refinancing would be in your best interest, but making sure to do so at an opportune moment is also an important factor. Regardless of the type of refinance or loan, your financial standing will influence the final terms. Having a stronger credit score typically translates to better rates and terms, which can save you money in the long term. Unfreeze any credit before you start the application process and take care of any tax liens that would prevent you from qualifying.

4. Compile required paperwork

 Mortgage refinancing is a process that typically requires paperwork that is similar to your required first mortgage property loan. For a smooth refinancing process, you should gather every required document and financial record ahead of time before applying for a mortgage refinancing. Your lender will usually require the following:

• Business tax details of returns (Two years)
• Personal tax records and returns (Two years)
• 1099s or W-2s (Two years)
• Bank statements (Two months)
• Childcare payments/ alimony proof

5. Organize your paperwork

Though refinancing is an easier process than when you first bought the property, you’ll still need to submit several documents. Your lender will need to confirm your financial history, income, and assets, among other things. Here are some examples of documents you will need:

• Last two pay stubs / rent receipts
• Bank statements for savings, checking, and business accounts
• Last two tax returns and W-2s
• Copies of rental lease(s)
• Proof of investment property insurance
• Proof of payment for any liens

Property appraisal

Part of the process of refinancing a property is the appraisal. This will give the lender an idea of how much they should lend you knowing the value of the property. Ideally, it will show a higher value than what you paid. It will determine how much equity you have in the property; higher equity typically leads to better terms and rates. A lower value is an indicator you may need to ask for a lower loan amount. Appraisers take various considerations into account, such as the property’s features and size, value of neighboring properties, and the condition of the building and property space. Putting some work into the property to increase its value is not a bad idea when you know you’ll want to refinance.

Conclusion

Though the refinancing process will require a bit of leg work, the more knowledgeable you are about the process, the easier it will be. Let’s review the ways you can prepare:

• Identify your ‘why’ for refinancing and set your goal(s)
• Learn about the different types of refinances and loans to determine the best way forward
• Know your financial situation and improve where you can
• Be organized with your paperwork and be prepared to submit documentation in a timely manner
• Be prepared for the outcome of the appraisal and look for ways to improve the property

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You’re probably aware of the numerous benefits that come with refinancing on your investment or rental property, but have you ever thought of how to do so with bad credit? Having a strong credit score is something that is repeated over and over in regards to qualifying for a mortgage loan, but there are ways to qualify without waiting for your credit score to improve. In this article we’ll go over the options you have to refinance with a less than perfect credit score.

1. Non-Occupying Cosigner

A non-occupying co-signer is someone who does not live at the property as their primary residence but is signing off with you on the loan for that property. They share part of the financial responsibility for the loan and are used in the qualifying process. The lender will consider their credit score, assets, and income during the underwriting period. This co-signer may be required to be on the property’s title (deed) as well.

Though a cosigner can serve to reduce your debt-to-income ratio (DTI), you will still need to meet the minimum qualifying credit score. The lender will consider the lower median credit score between you and your cosigner, so make sure you are not partnering with someone that could make your prospects worse.

Having a cosigner won’t guarantee that you receive the rate and terms you’re after, but they can certainly increase your chances.

2. Cash-out refinance Mortgage

If you have a modest credit score, you may qualify for a cash-out refinance. When you cash-out on a refinance, your existing mortgage is replaced with a new loan for more than you owe on your house. That difference goes to you in cash and can be used to pay off other debts that are weighing your credit score down. Since mortgage loans are known for having the lowest interest rates of any debt, it may be wise to accept the terms of a longer loan to pay off credit cards with significantly higher interest rates.

3. FHA Streamline Refinance

Through FHA Streamline refinancing, you can significantly reduce your commercial property’s monthly payments or even adjust your current loan duration and term. The process is relatively straightforward and requires less paperwork and has fewer underwriting requirements. Some criteria to qualify for an FHA streamline refinance include:

• Minimum credit score of 580 (though some lenders do not run a credit report)
• Having an existing FHA loan
• No late or missed payment in the last 12 months
• Waiting period of 212 days from date of your first payment

4. VA Streamline Refinance

 

This option exists for borrowers with VA loans. With VA streamline financing you can reduce your monthly payment by switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, lowering your monthly interest rate, and extending the loan term. As with FHA streamline loans, VA streamlines come with their set of criteria:

• Have a current VA loan
• No late or missed payments for 6 months
• Waiting period of 212 days from date of your first payment

Key Takeaways

• You have options if you’re looking to refinance a mortgage with a bad credit score
• Get with a cosigner who can increase your chances of qualifying
• Take advantage of mortgage loans’ low interest rates to cash-out and pay down other debts
• Check to see if you qualify for an FHA or VA streamline loan

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The process to refinance an investment or rental property loan can appear daunting, but understanding the timeline, expectations, and requirements can make it easier. In this article we will go over the timeline for the process to refinance your investment or rental property and ways you can prepare.

How Long Does Refinancing Take?

In most cases, the process to refinance an investment or rental property should take between 30 and 45 days. The process will look similar to when you originally purchased your investment property but with a few tweaks. Here is what the general process to refinance your the property will look like.

1. Get prequalified – Before you can refinance your investment or rental property, you’ll go through the pre-approval process to learn about the types of loans and rates available to you.
2. Choose your loan – Now that you know your options, you’ll decide on the type of refinance, loan and terms you want to go with.
3. Lock in your interest rate – A rate-lock is usually valid for 30-60 days, enough time to complete the underwriting process.
4. Document processing – At this point you know the terms of the loan you are getting, so it’s time to start submitting required documentation to your lender.
5. Final review and approval – Your lender will vet and process your loan application. If the documentation you’ve provided meets the underwriter’s requirements, you’ll be conditionally approved.
6. Clear to close – This is when you’ll receive your final approval. In this phase you’ll receive a preliminary ‘Closing Disclosure’, a document that breaks down the costs of refinancing your mortgage. You’ll make final adjustments during this time.
7. Closing day! – Finally, you will sit down with the title company and sign your closing documents. Before you arrive at the closing table, you will have gotten a cashier’s check or wired your final ‘Cash to Close’ amount.

Reasons to refinance your property.

If you are looking to refinance your investment or rental property, you’ll want to be sure you are coming out with a better deal. Knowing what you want going into the process will help you make advantageous decisions about the terms and conditions of the loan you are refinancing for. Below are some common reasons people choose to refinance their investment or rental property.

1. Increase Cash Flow: A common reason many investors choose to refinance their commercial property is to maximize their return on investment. By choosing to refinance, you have the option to reduce your interest rate, lower your monthly payment, and even shorten the loan term. Taking advantage of current rates can lower your mortgage payment to increase your monthly profits.
2. ‘Cash out’ Refinance: If you’re looking to invest in a new project but are short on cash, you may be interested in a ‘cash out refinance‘. With this type of refinance your existing mortgage is replaced with a new loan for more than you owe on your house. The difference goes to you in cash to spend how you choose.
3. Reducing risk: Owning several investment, rental, or investment properties can carry an inherent risk, but refinancing offers an option to mitigate these risks. By consolidating your loans you can take advantage of the current low interest rates to pay off your loans faster and even receive fee reductions. 

How to prepare for a refinance?

As we have seen, the process to refinance an investment or rental property loan has various steps. In order to make the process more seamless, you will want to do all you can to prepare yourself and the property. Here are ways you can prepare to make the process easier.

1. Prepare your documents ahead of time: There are several documents that you will be asked to provide for your refinance. Your lender will need to confirm your financial history, income, and assets, among other things. Here are some some examples of documents you will need:
2. Last two pay stubs / rent receipts
3. Bank statements for savings, checking, and business accounts
4. Last two tax returns and W-2s
5. Copies of rental lease(s)
6. Proof of insurance
7. Establish your goals: Before beginning the process to refinance your investment or rental property, establish your ‘why’. Are you looking to lower your monthly payment and interest rate? Do you want to change the type of rate? Are you looking to cash-out on the property’s equity? These are all questions to consider beforehand to make sure you are choosing the right refinance and loan for your situation.

Key takeaways:

• The process to refinance your investment or rental property will typically take between 30-45 days
• Refinancing your investment or rental property can be a financially beneficial decision
• The process to refinance has many steps, the better prepared you are the better

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