Is it possible to tap into the equity of my rental property?
Yes it is. Although it’s been difficult to get a cash-out refi on investment properties in the past few years, mortgage lenders have loosened up their guidelines and qualifications to cater to a diverse array of borrowers.
Tapping into your rental property’s equity could help you in many ways. Growing your rental income is one, if the purpose of your refi is to improve your existing real estate. If you’re low on cash, it can help you ease your budget. Or, if you took out your mortgage when interest rate was higher than it is now, you can save thousands of dollars on a lowered rate when you refinance.
In this article, we will discuss the things you need to know before you take on the endeavor of refinancing your rental property.
Of course to get started, you need to be in a good position for a cash-out refi and that is determined by the equity you hold on your property.
Lenders will loan up to 75 percent of the property’s appraised price for non-owner occupied properties. Some banks may loan up to 80 percent but in exchange for higher interest.
The higher your equity is, the more chances you have of qualifying for the needed refi.
Investment Property Cash Out Refi Rules
According to Fannie Mae, you must be able to satisfy the following conditions to be able to cash out on your property:
- A maximum LTV ratio of 75 percent for single-unit properties and 70 percent for properties with 2 to 4 units. These maximums are lowered by 10 percent for ARMs
- A maximum LTV ratio of 70 percent if the property was listed for sale within the last six months
- The property must not be on any sale listing during the time of application
- If the property was bought within the last six months, you will not be allowed to cash out, unless you meet the conditions in the Delayed Financing guidelines which state that:
a) the new loan must not exceed the property’s purchase price, including the cost of closing
b) the property was not purchased via mortgage, unless the financing was on another property
c) the seller was originally interested solely on the sale
d) the buyer possesses a final settlement statement containing the details of the purchase transaction
What to expect
As cash out refinances on investment properties are generally considered risky by many lenders, they may have tight standards as to who qualify for these loans.
Typically, your lender will require you to have excellent credit and at least six months worth of liquid assets. You will also be required to forward the necessary documentation which includes tax records, rental lease agreements and information on property income.
If you currently hold four properties under financing, you may not qualify for the cash out.
Things to Consider
Before you head out and forward your refi application, see to it that the conclusions of your refi goals would be in alignment with your investment goals. If you are planning on taking more financing in the future, cashing out now would most likely hamper that goal.
Taking out cash from your equity for short term gratifications may also not be a very good idea. If the need is immediate, make sure that your rental income will be able to recoup the cost in the future.
Does the end justify the risk? If you are uncertain of your decision, consult with our professionalstoday to get guided, expert opinion.