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Getting a No-Doc Home Equity Line of Credit
In the ever-evolving realm of finance, acquiring a home equity line of credit (HELOC) without the rigorous paperwork,...
By: Bob Viscount on Dec 16, 2021 10:47:00 AM
If you own a rental property, and you’re thinking of refinancing, how exactly does this work? Why would you want to do this? And what’s the process like?
Greetings, friends. This question comes into A Nightmare on Loan Street Blog’s inbox every so often, so I thought it would be a good time to tackle refinancing a rental property.
Rental properties serve as a crucial way to bring in supplemental income (or primary income). This extra money can help with things like gifts during the holidays, a rainy day fund, or a nacho cheese fountain for your next block party.
Now, rental properties are a lot of work and can be very stressful at times. However, if you want to maximize your profits, refinancing may be the way you can get it done. Holla!
The biggest factor in your decision to refinance should be the interest rate. If you’re able to snag a lower interest rate, this will either lower your monthly payments (wahoo!) or if you continue making the same monthly payments, you’ll have more going towards the principal balance, and you can pay off the loan sooner (also wahoo!).
In terms of process, refinancing is basically like getting a new loan. While the actual requirements may differ among lenders, you can expect to show:
*Phil’s rental property refinancing disclaimer*
Refinancing does come with closing costs, just like your current mortgage. Additionally, investment property loans carry more risk for the lender, as they can be the first things to default if finances go south. Due to this, there are steeper requirements on equity, loan-to-value (LTV) ratios (basically how much money you can borrow compared to the value of the home), and other fees. You’ll also want to be sure that your credit score is strong, otherwise you might risk missing out on that lower interest rate.
In short, you’ll want to do the math. For many, a lower interest rate may be worth the closing costs and going through the process. But it really depends on how much lower the interest rate is compared to what you have now. We recommend using this DSCR calculator.
So keep an eye on those interest rates. This will help you save up for that nacho cheese fountain. I’ll bring the chips.
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