You have a rental property. You don’t want to give it up but you do want to refinance it because rates are low and you may have purchased the property when rates were high. Or, you’re just looking to pull some money out of the rental property to either improve that home or maybe your primary residence. Whatever the reason, there are some tricks to refinancing a rental property.
If your rental property has increased and equity over the last few years you might want to pull some of that money out for a variety of reasons. Maybe you want to buy a different rental property, make home improvements to pay off other loans.
Home values have risen nearly 35% nationwide since 2012, according to the Federal Housing Finance Agency. Many investors can actually get more benefits out of pulling out their equity than if they had left it untapped. This is a great way to make the home’s value work for you. You can either build out your real estate portfolio get a cash-out loan up to 75% of the current value allowing you to put 20% down on another rental property or use it for other uses.
More: should I refinance before rates go too high?
Only conventional loans may be used to complete a cash out loan on a property that is not your primary residence. This means that if you don’t occupy the home yourself, only a conventional loan for refinancing will work. FHA, VA and USDA home loans are reserved for owner occupant properties only.
Fannie Mae and Freddie Mac set the guidelines for these lenders and rules are fairly lenient for cash out refinances for conventional loans.
For 2017, the loan-to-value ratio varies from Fannie Mae to Freddie Mac. The following spreadsheet shows the loan-to-value limits for both Fannie Mae and Freddie Mac for cash out refinances and no cash out refinances. Note: only homes that have been listed for sale within the last six months must be taken off the market. These properties that have been listed are limited to a 70% loan-to-value ratio to qualify for cash-out refinance. There are special exceptions so check with me on your specific home if your property has been listed recently.
| Fannie Mae | Units | Fixed Rate | ARM |
| No-Cash Refinance | 1-4 unit | 75% LTV | 65% LTV |
| Cash-Out Refinance | 1-unit | 75% LTV | 65% LTV |
| 2-4 unit | 70% LTV | 60% LTV |
| Freddie Mac | Units | Fixed Rate | ARM |
| No-Cash Refinance | 1-unit | 85% LTV | 85% LTV |
| 2-4 unit | 75% LTV | 75% LTV | |
| Cash-Out Refinance | 1-unit | 75% LTV | 75% LTV |
| 2-4 unit | 70% LTV | 70% LTV |
Table courtesy of TheMortgageReport.com
These are only rules for Freddie Mac and Fannie Mae. There are many lenders that offer loans outside of these rules and can create their own programs that are more lenient providing cash out, credit or other options. Don’t be discouraged if you are not within these guidelines. I have lots of connections that could provide you a refinancing option for your rental property. There are exceptions, waiting periods, and other details that apply to a wide range of situations.
Your Credit?
Your credit, FICO scores, and credit history also play a factor in whether or not you can get cash-out refinance. Underwriting laws will be more stringent and have a higher risk. Many lenders set the minimum credit scores between 680 and 700 although Fannie Mae will allow a 620 if it is approved through its computerized underwriting system. We also want to know that you have adequate cash reserves. Minimum reserves are based on the proposed payment on the property and whether any other properties are owned by the borrower.
More: How to get rid of mortgage insurance or second mortgage
One of the best ways to find out how much cash you can receive on your rental property refinance is to simply call me and talk to me about the details. I can offer you different options and programs that are available to you and let you decide if this is a good move for you and your investment future. CALL ME!