Looking for ways to get the most financial benefit from your rental property investment? Refinancing with a private lender may be the answer. Refinancing can provide a number of benefits, including raising more funds, reducing monthly payments, and the opportunity to invest in other properties while leveraging your equity. In this article, we take a look at the reasons why refinancing your rental properties can help you unlock wealth-building opportunities.
How do I refinance my rental property?
Refinancing an investment property is easier with a private lender than refinancing a home loan. As each loan scenario is different, it is always best to work with an experienced real estate investment lender and broker plus loan facilitators like Fincue here in Australia who can provide you with the best options based on your needs.
Here are some recommendations of you are considering refinancing:
- Make sure your property has enough equity (usually a balance of less than 70% if you have a loan),
- Prepare basic information/documentation about the property,
- Submit your loan application to a lender for prequalification,
- Work with a lender/broker to minimize credit inquiries.
Refinancing can provide you with much-needed liquidity, which can be used for a variety of purposes, including paying off high-interest loans or credit cards; make improvements to the rental property, such as installing new windows and upgrading appliances; fix the house you plan to sell; consolidate credit card debt or have cash available for investment opportunities.
Can I refinance my investment property even with bad credit?
The simple answer is yes. Refinancing an investment property with a private lender will increase your chances of approval. That said, the rates and terms are likely not comparable to a bank. However, if you have a higher credit score, the terms will be more favorable.
Refinancing your investment property is about making the numbers work!
When you refinance an investment property with a private lender and mortgage broker like those who you can get through us at Fincue, you will need minimal paperwork to work with a bank and will receive the best approval terms you seek. Most conventional / bank lenders require you to have two years of positive cash flow from rental properties or other investments before considering refinancing. Private lenders, however, are much more flexible in terms of structuring your refinance transaction with a cash withdrawal. Speak with us today, at Fincue, to help facilitate the loans for you by getting your the right brokers.
Advantages of refinancing your investment property loan with a private lender
There are many advantages to refinancing with a private lender. First, their underwriting guidelines are much more flexible than banks, and they also have fewer requirements than traditional lenders.
Second, they have fast pre-approval times that can be completed in as little as a business day or two. Additionally, you will find that your refinance will require less documentation compared to other loan programs. Finally, a minimum credit score is not required to qualify.
If you’re wondering, you don’t need to hire a real estate agent.
What do I need for my refinance?
When you refinance your investment property with a private lender, they will primarily focus on the following:
- Property Location – Are you in a desirable market area with stable or increasing property values?
- Property Type – Single Family Homes are generally easier / quicker to approve (based on condition and if there are tenants). In the case of commercial properties, it will depend on the type of property and its purpose (for example, warehouse, office building, commercial premises, etc.). Vacant land is not typically a preferred asset class for private lenders and can be more difficult to finance. The type of property is important as private real estate lenders tend to focus more on the asset itself.
- Investment Experience: Unconventional private lenders often offer more favorable rates to investors with a history of prior real estate transactions. So having this transaction available will help you apply.
- Repayment capacity: In most cases, no tax returns will be required, but bank statements are generally requested to determine the borrower’s repayment capacity.
- Recent Mortgage Statement – If your property has an existing loan, you will want to have a recent loan statement available that shows your balance and payment history.
- Rental List – If the property has multiple units with tenants and is generating income, a rental list will be required to show the property’s monthly income.
- Copy of recent credit report: Although private lenders will focus primarily on the asset, borrowers with better credit scores will receive better rates and terms than those with lower scores.
What about the interest rate?
Your mortgage rate may be slightly higher than conventional loans, but it is important to understand that your monthly payment will likely be lower. This can have a big impact on the amount of money that comes out of your pocket each month and the amount you pay for your principal balance.
Interest-only vs amortized loan
While amortized loan payments include payment of interest and principal, interest-only loans offer lower monthly payments because the borrower only pays the interest. This is ideal for fix and change investors who intend to sell the property in a few months and want to minimize their holding costs. However, because an interest-only loan has no principal payment until it is paid in full, the balance must be paid off at some point. This can be done in a single lump sum or by converting to a repayable loan with larger monthly payments that go towards both principal and interest. Or in the case of most investors, you can sell the property before the loan is due.
Are there penalties for prepayment?
In most cases, fixed and reversible short-term loans (with terms of 1 or 2 years and interest payments only) will not have prepayment penalties. On the other hand, rental property investment loans with terms of up to 30 years may have a prepayment penalty for the first 5 or 7 years of the loan. Typically, the penalty is on a sliding scale, meaning it decreases each year for the first 5 or 7 years.
What about closing costs?
The closing costs are similar to what you would encounter when buying a home. These include the lender’s opening fees, appraisal fees, title insurance premium, and closing attorney’s fees. These can range between 3% and 6%, depending on the state in which your property is located. Also, it’s important to note that if there are other loans on the property, such as a home equity line of credit or an outstanding mortgage payment, you may need to pay them off before closing. Taxes and, where applicable, real estate agents’ fees would also be included.
Ready to refinance your investment property?
Apply with an experienced real estate investment lender and a broker. We, Fincue here in Australia, will get your brokers that will connect you with the right lenders and get you the nice deal you deserve.
The process of refinancing an investment rental property can be complicated. You must decide on the type, time, and program that are right for your situation. Cash-out refinancing is a great way to get your money back if you want to sell or refinance your investment rental property.
The investment property refinancing process has many benefits for the investor, but it can be overwhelming if you don’t know what questions to ask. If this is your case, call us at Fincue today!