How to refinance automotive repair property?

May 15, 2021

Refinancing is a valuable tool for investors to save money and improve their businesses. If you are an investor with an automotive repair property, refinancing the mortgage on your property can be a way to reduce costs and free up the cash you need for your business or other projects. Here is a quick guide on how to refinance the mortgage of an automotive repair property.

Why Refinance the Mortgage?

Refinancing can be a wise financial decision for many types of borrowers. Here are a few reasons investors choose to refinance:

  • Lower interest rate

Interest rates are at historical lows. Refinancing to secure a lower interest rate means less of your income is tied up with your mortgage payment—more money in your pocket = more money to invest back in your automotive repair business.

  • Change mortgage term

By changing your loan term, you can increase or decrease the life of the loan. You can lower your monthly payment by increasing the loan length, which leads to paying more on the overall life of the loan. Shortening the loan length will give you a higher monthly payment but means you will pay less in the long run.

Cash Out Refinance?

An excellent option for investors is to cash out refinance on their investment property. With this refinance, your existing mortgage is replaced with a new loan for more than you owe on the property. The difference goes back to you in cash. Cashing out on the equity you own on a property is a great way to get capital on hand for renovations, repairs or to invest in new projects.

How to prepare for your automotive repair refinance?

Now that you understand why it would be beneficial for you to refinance your automotive repair property, let’s look at what you can do to best prepare.

  • Know the requirements

Your lender needs to determine that your business is a safe investment. They will consider the following factors:

  • Debt service coverage ratio (DSCR): Lenders will consider the business’s cash flow as it compares to its debts to assess its reliability as a borrower.
  • Credit score: The higher the business’s credit score, the more favorable loan terms will be available to you.
  • Net operating income (NOI): Lenders want to see that the business is profitable. A higher NOI will improve your chances of qualifying for a commercial loan.
  • Operating history: When assessing how safe a borrower a business will be, lenders will consider the company’s history. They want to see that the business is sustainable and will be around for the long run.
  • Organize your documents

Preparing your documentation

Every lender’s documentation requirements will vary slightly, but generally you can expect to provide the following:

  • Business and personal tax returns
  • Business and personal bank statements
  • Year-to-date business operating statements
  • Proof of payment for any liens

Key Takeaways

  • Refinancing your automotive repair property can free up cash, either by lowering your monthly payment or through cash-out refinancing.
  • Cashing out on the property’s equity can allow you to invest in renovations and other projects.
  • There are several ways you can prepare yourself as a borrower to secure more favorable loan terms for your refinance mortgage.

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