Refinancing a rental property mortgage isn’t a walk in the park these days. With the lending market getting tighter and the looming threat of another recession, it’s become a bit of a challenge. But don’t worry, this guide will walk you through the documents you’ll need to get it done.
Rental property mortgages usually come with higher rates than primary home mortgages. Why? Well, banks see landlords as taking on more risk. After all, you’re relying on your tenants to help pay the mortgage. If you’re not a good landlord or if you end up with bad tenants, that’s a risk the banks have to consider.
So, what do you need to refinance a rental property mortgage? Think of it like preparing for a long bus ride with an upset stomach – it’s not going to be fun, but the more prepared you are, the better. Once you’ve gone through the process, you can sit back and enjoy the benefits of lower interest rates for years to come.
Here’s a list of documents you’ll need. Some of these are specific to rental property refinancing, but they can also apply to primary residence refinancing:
- Rental lease: Banks want to see that you have a tenant and how much rental income you’re getting.
- Proof of rent deposit: To verify the rental lease, banks will want to see a record of the rental deposit.
- HOA meeting notes and financial reserves: You’ll need to get this info from your HOA President, Secretary, and Treasurer. It might be a bit of a hassle, but it’s necessary.
- Homeowners Association insurance: Banks need to know that the HOA entity and all the property outside your walls are insured.
- Homeowners insurance: You also need insurance that protects the inside of your walls. Without it, a bank won’t lend.
- Bank statements: Banks will generally ask for the last two months to see your cash balances. The more cash you have, the better.
- Brokerage statements: These show your semi-liquid assets. They’re not always necessary, but banks often ask for them.
- 401k/IRA statements: These are good to have if your income or credit score is a bit low and you need some extra support.
- K1 forms: If you invest in private companies, banks will want to see these forms, even if they don’t directly relate to your cash flow.
- Credit report(s): Banks will pull your credit as part of your refinance fee, but it’s a good idea to check your credit score for free before applying.
- W2 form: This is probably the most important document. If you don’t have one, you’ll need to highlight your other income streams and assets.
- A personal letter: It’s always a good idea to humanize yourself and explain why you want to refinance your rental property.
Remember, only give the bank what they ask for. You want to provide just enough to qualify and no more. Your mortgage officer will likely tell you the same thing.
Refinancing a rental property mortgage can be a long process, especially if your income situation is complicated. Expect it to take at least two months. But if you can stick it out, you’ll save a lot of money in the end.
Now that you know what documents you need to refinance a rental property, it’s time to take advantage of record-low mortgage rates. If you’re bullish on real estate like me, buying physical rental properties makes a lot of sense. Interest rates are still relatively low, making rental properties more valuable.
If you don’t have the down payment to buy a property, don’t want to deal with the hassle of managing real estate, or don’t want to tie up your liquidity in physical real estate, consider looking into real estate crowdsourcing companies like Fundrise and CrowdStreet.
Lastly, always check the latest mortgage rates online. The more free mortgage rate quotes you can get, the better. This way, you can make lenders compete for your business and ensure you’re getting the lowest rate for your situation.
