Being an owner of the rental property, it would be greatly beneficial for you to refinance any of your rental properties. However, any property owner can rent their property and obtain remarkable profit through it.
One of the most common yet favorable outcomes would be lower interest rates offered by mortgage lenders in Texas, indirectly saving you a great deal.
One can get a lower interest rate and a shorter loan term, among the innumerable benefits of refinancing the rental property. All these benefits eventually lead you to acquire more properties while improving your credit score and gaining long-term benefits.
Steps to refinance a rental property
#1. Know Your Finances along with its History
Even though the entire process of refinancing a rental property is not that complex procedure, being aware of all the aspects of it would be a smart move. So, when looking for a lender for refinancing, getting a brief idea of your entire financial situation will surely turn out to be quite beneficial.
Not just the history, but getting to know about the general minimum requirements is also something you should be aware of.
Essential facts to keep in mind
- Minimum Credit Score of 660
- Maximum LTV: 70-75%
- Maximum DTI: 45%
- Cash Reserve: Up to 6-12 Months
#2. Keep Your Documents Handy
Same as you maintain all your documents when getting a mortgage, you need to gather all the essential documents and keep them handy to get your refinance approved by local mortgage lenders.
List of Most Common Documents Required for Refinance
- Last 2 of your Tax Returns. For full-time investors, W-2 can be exempted.
- Last 2 pay stubs or Copies of recent rent receipts. (In order to get an overall idea of your income and also to calculate your DTI, i.e., Debt-to-income Ratio)
- Savings’ Account Bank Statement (Business accounts’ shall also work)
- Any/All rental or leased properties’ Copies
- Homeowners Insurance Proof. Along with that, flood insurance is based on the location of your property.
#3. Comparing Various Lenders and their Rates
Choosing a lender for your property makes all the difference. When you actually do this, you will see that there are various interest rates, qualifying requirements, and different terms from each lender. Do not hesitate to get multiple quotes from various lenders because, in the end, it will definitely benefit you.
The simplest and fastest way would be to compare mortgage refinance rates from (YOUR COMPANY NAME). By entering a few key details, you will instantly get to know the entire list of lenders and their pre-qualified rates.
#4. Now you can apply for a Mortgage Refinance
You can now apply for a mortgage refinance after getting an overall idea and finalizing your lender mortgage loan type. For that, you will need all your documents ready so that the lender can easily get essential details such as your history, debts, income, finance, and more. If required, they will also get their hands on your credit report and get all the required info before offering you the refinance.
Being one of the most critical tasks, you need to give your undivided attention while filling out the application. Additionally, keep your co-applicant by your side, along with his/ her documents ready and sorted. That will ensure that there are no delays from your side.
#5. Locking the Mortgage Rate
As we all are aware of fluctuations in mortgage rates daily, locking the offered mortgage rate would be a wise decision. You should know how much mortgage you can afford while refinancing a property. Once locked, the lender will offer these beneficial rates for a specific period, which most probably resides from 30 to 60 days.
The only reason to lock the mortgage rate is that applicants can get their mortgage at lower interest rates even though the current rate is going up.
#6. The “Underwriting” Process from the Lender
The underwriting process involves the lender taking a deep dive into your financial records to ensure that you can pay the loan without any difficulties. As we discussed earlier in step #2, you need to submit all the required documents to the loan officer.
#7. Closing the Loan
Loan closure would be the final step where you will be signing the papers and paying closing costs. Generally, a refinance loan’s closing cost varies from $4500 to $5000.
After everything is done, you will have about 3 days to decide against it, or else the refinance will be finalized and done!
General Requirements needed to Refinance Rental Property
- Having a “Good” credit score will be quite beneficial, whereas an “Excellent” credit score will surely get you in the good books of the lender.
- The loan-to-value ratio for refinancing the rental property would be around 60-70%. Significant equity in your property will get you higher chances of qualifying.
- Regularly maintained accounts with higher income ensure the approval or refinance. That also means that you are easily able to pay the loan, that too, on time.
Bottom Line
Rental property owners always have to be on the lookout for their investment and take various precautions to keep it safe. One of the most thoughtful decisions would be to refinance your rental property and get a lower interest rate. These steps will help you make an informed decision and by doing so, you reduce your monthly payments and save on the interest amount.
Mortgage lenders in Texas are definitely interested in refinancing rental properties and can get you the best rates. However, make sure to compare mortgage refinance rates from different lenders to get the best deal.
