January 2017 // Real Estate & Home Builders Guide // 13M
Refinancing rental property? Check
out these tips for shopping around
By Ilyce Glink
and Samuel J. Tamkin
Tribune Content Agency
Q
: I need some information regarding
which way I should go about
refinancing my rental property, in order to
reduce my rate, as well as to be able to take
out some cash. There is a line of credit, with
a high interest rate, with a large bank.
Is HARP, a better place to go? Is a credit
union better? Is a local small bank better?
There is no mortgage on the house, and the
house has appreciated because of where it is
located, a hot vacation rental market.
Can I check several of these banks, credit
unions and HARP within a month and not
be hit on my credit score?
: It seems that you should have a few
options for taking cash out of your rental
property, particularly if you don’t have a
mortgage or the mortgage balance is low and
you haven’t drawn down your equity line
of credit. But, let’s start at the top and parse
through the various opportunities for using
your equity in the property to get a loan.
First, lenders treat vacation and rental
properties differently from an owner-occu-
pied primary residence. That’s because there
is a perception that rental properties tend
not to be maintained as well or be as stable
as primary residences. An owner will tend
to keep the property he or she lives in every
day in better shape than one that is main-
tained to a rental standard.
Mortgages that fall under the Home
Affordable Refinance Program (HARP) are
designed for properties that are either under-
water (meaning they’re worth less than
the mortgage amount) or have less than 20
percent in equity and would be difficult to
refinance. Since you do not have a mort-
gage, and we’re assuming you haven’t drawn
down any equity on the credit line, you
wouldn’t qualify for a HARP refinance.
Could you take out a new line of credit?
Possibly. Some lenders will do home equity
lines of credit (HELOCs) for investment
or vacation properties. You might want to
shop online but also talk to a local, repu-
table mortgage broker. (If you don’t know
one, call a couple of bigger, local real estate
companies and ask for a referral.)
Some lenders will also do a cash-out refi-
nance for an investment property, but don’t
expect to take out 80 percent of the equity.
You might be able to borrow 50 percent
of the equity you have in the property, or
perhaps a little more.
As for shopping around, you can
certainly do this without officially applying
for a loan. If you know what your credit
A
score is, just tell the lender, “Assume I have
a 760 credit score” or whatever it is. If you
don’t know what your credit score is, you
can go to AnnualCreditReport.com, and
pay $9 for a copy of your credit score from
one of the three credit reporting agencies:
Equifax, Experian or TransUnion. While
the credit score a lender uses will differ a
bit from the three you’re offered, it’s close
enough to get you pretty far along in a
conversation with a lender.
When you shop around you’ll want to
talk with a mortgage broker, a big national
lender, a local or regional lender, a credit
union and perhaps a company that only does
online lending to get a good idea of what
kind of loans are available. We’ve found that
by shopping around with different types of
lenders, you’ll wind up getting a good under-
standing of the market for a loan like yours,
and which lenders are interested in doing that
sort of business. Not all lenders will want
to finance or do a cash-out refinance for an
investment property.
At this point of your loan search, you’re
looking for good information to guide you on
how to proceed. Interest rates are only one
part of the story. You also have to see what the
closing costs will be of any loan product you
contemplate. While you might want to lower
your monthly payment or interest rate on your
loan, you have to see how long you it will take
to repay the loan to really assess whether the
loan has the right interest rate, right costs,
right term and fits your financial future.
Don’t look for what seems to be the
cheapest loan. You also want to learn about
the products and make the right decision for
your budget and finances. Whatever lender
you wind up with, you’ll need to provide
proof that you can afford to pay the mortgage,
and may be asked to show proof of all assets.
And even if you could afford the actual
payments, a lender might tell you that you
don’t qualify for a loan of the size you need.
For example, if you are living on Social
Security and the rent from your rental prop-
erty, and you want to borrow $200,000,
lenders may tell you that you can’t afford to
make the loan payments each month, on top
of the real estate taxes and insurance that
they will require you take out (if you don’t
already have it).
Take your time. Work with quality
lenders who take the time to explain things
to you in a way that’s understandable. And,
if you find that you’re being talked down to,
be sure to vote with your feet.
We have much more information on
lending at our website, www.ThinkGlink.
com.
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