Your real estate business will never get off the ground unless you can leverage the property you have to grow your empire further. This requires a financing or refinancing program with low rates, and for that, you’ll need to work with a bank (or perhaps multiple banks) that not only provides the money but offers the knowledge and know-how to streamline your investment property refinance needs.
The golden question is: how do you find a financial institution that’s willing to work with you and offer great rates? You can make a good start by taking note of the steps and information below.
Get your accounts in order
In some ways, getting a bank to offer you a financing or refinancing program for your property is no different from securing a regular loan or credit card. For one, you’re not going to get very far unless you have a good credit score and income — this proves you’re a reliable borrower that the bank can count on to meet payments.
If your finances aren’t looking so peachy, consider looking for a partner with better credit or more income who can sign the agreement with you. This will provide extra reassurance to your lender.
The next thing to think about is your accounts. Many people who own multiple properties end up with confusing, disordered financial information, and this is a surefire route to having your application denied. Tidy everything up before you submit the application for your investment property refinance.
What to look for in a investment property refinance bank
But this process isn’t just about you proving yourself to the lender — they should also prove themselves to you. Choosing the wrong finance product can be costly in more ways than one, so here are a few features to watch out for in your search.
Firstly, you should be aiming for an interest rate that’s as low as possible to minimize your costs. But this isn’t the only thing you need to look out for. To improve your cash flow and therefore maximize the scalability of your business, choose a longer amortization rate (which determines how long you have to pay off the money). This isn’t to be confused with the loan term, which determines when you’ll have to renew the loan — again, the longer the period the better, but this isn’t quite as important as the amortization rate.
Another critical factor is the loan-to-value ratio, which states the percentage of a property’s total value the bank is willing to lend you. Unfortunately, you can’t expect a number significantly above 75%, although there’s some variation depending on the local market.
If you’re refinancing, you’ll also need to consider the seasoning period: the length of time you need to wait for a bank to lend you money based solely on the property’s value (and not how much cash you’ve actually put into it). Investors should be aiming to do this as quickly as possible, so six months would be ideal. Another option to look for is cash-out refinancing, the more equity you can pull out can help you grow your investments.
Finally, look out for any additional charges, such as a prepayment penalty. These are a pain and should be avoided where possible.
Choosing the right bank
Although opting for a product with the right features and terms is essential, you should also pay attention to the bank itself. What kind of customers is it trying to attract, and does it have a good track record?
Borrowing as a real estate entrepreneur is a little different from borrowing as a homeowner, so try to look for banks trying to target investors. To find them, consider attending local conferences, meetups, or events related to real estate.
But even if you’ve found a bank that looks perfect on paper, that doesn’t mean you should take it at face value. While you’re at the events outlined above, don’t be afraid to ask fellow investors for their recommendations. If a few lenders get name dropped consistently and others come with warnings, that’s a clear signal of where things stand.
And as a final frontier, do your own research by checking which banks have loaned to the kinds of properties you want to buy (aka non-owner occupied and in a similar area and price range) recently. Listing each of them is a great starting point.
If you follow all three of these steps, you maximize your chances of finding the best bank, but even doing one is better than choosing a bank at random.
Time to get things off the ground
Now you’ve done your research into choosing the right bank and loan, there’s only one ingredient left for you to get your real estate empire off the ground, and that’s you putting the work in.
So, start identifying the right banks and comparing their loan offerings. We wish you the best of luck!
Start Your Investment Property Refinance
New City Financial is a leading investment property refinance lender. Expect funding in less than 2 weeks. Call (855)848-2862 today!