How to Refinance 1-4 Unit Investment Property?

May 15, 2021

For real estate investors looking to keep costs down and increase income, refinancing is often a smart move forward. Many people are looking to take advantage of the current low interest rates to refinance their personal and investment loans to lower their monthly payment, ‘cash out’ on equity, or even reduce personal debt. Here we will cover the ins and outs of refinancing a 1-4 unit investment property.

How long does it take to complete the refinance process?

Typically, the process to refinance an 1-4 unit investment property takes between 30 and 45 days. The first step will be to complete your loan application. You’ll usually then have the option to lock your interest rate. Next, the loan and the property will go through a process known as underwriting. In this phase, your lender will verify your income, analyze your financial assets, and order an appraisal to assess the value of the home. Three days before the final closing date, you will receive a preliminary ‘Closing Disclosure’, a document that shows the total cost of the refinance. Finally, you’ll sit down with the title company at your closing appointment to sign all of your documents and ask any remaining questions.

Cash Out Refinance

“Cashing out” or Cash out Refinance on the equity you own is one of the best ways to profit from your investment property. With a ‘cash-out’ refinance, your existing mortgage is replaced with a new loan for more than you owe on the property. The difference goes to you in cash to spend how you choose. Many investors choose to use the money for renovations that could end up making them more money in the long term. Others choose to invest that money into new projects or to simply have emergency cash on hand.

Requirements to Refinance an Investment Property

The decision to refinance the mortgage of your investment property should be made after assessing your current financial standing and the ways you would benefit. The next step is to review the factors that could qualify or disqualify you for a loan. Here are some things lenders will consider in the process:

  • Debt-to-income ratio (DTI)
  • Credit score
  • Number of mortgaged properties
  • Loan-to-value ratio
  • Property equity

Summary

When done under the right circumstances, refinancing your rental property is a great way to maximize your investment property’s ROI. It can free up cash for you by lowering your interest rate and monthly payment and allow you to ‘cash-out’ on your equity for other investments. Determine if refinancing your rental property makes sense with your current financial situation and the rates and terms presented to you.

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