Over the past week I have been speaking toChris Nichilo about refinancing an investment property and I realized how easy the process can be if you are organized and know what to expect. It also helps to have a professional by your side to guide you and help avoid possible snags you could encounter along the way. This is what I learned:
1. The application. First, you need to answer the two most important refinancing questions using sound mathematics, and no emotion: · Does it make mathematical sense to refinance and reduce the term? · Will I qualify? If you plan to hold the investment long enough to recoup the costs of refinancing, usually 3–6% of the loan amount, it's worth it to refinance. Reducing your term could also increase your monthly payment, so make sure there's room in your budget.
2. Credit and income. Every lender will review your credit, verify your income, and schedule an appraisal of your property. Generally, higher scores qualify for the lowest interest rates, so it is very much worth educating yourself about credit bureau fact or fiction, and how the scoring system works. 3. Tighter lending standards mean lots more paperwork. You will have to show where your money comes from and that you actually have the funds to close the loan. Get organized and be prepared!
4. Lenders are also pickier about appraisalsand appraisals are now almost mandatory, so expect them. Lenders all have their own approved appraiser lists, so it's better to get the help of a professional that can determine the right lender for your deal, before you pay for an appraisal and risk having to pay for another one.An appraisal that doesn't compare your home to another home sold in your area in the last 90 days could be turned down.
5. Wait. At this point, the process is out of your hands. Be ready to answer some questions for clarification or provide even more documentation, and keep tabs on the process with your lender yourself or via your agent.
6. Closing. If your refinance gets the green light, your lenderwill arrange a closing. You will be given a cool off period after you sign the closing documents to cancel the refinance if necessary.
Now you're free to reap the benefits of historically low interest rates.