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5 Tips To Make Your Refinance A Successful One

If you are looking for capital, you might not need to look very far. All the money you need could sitting right inside your portfolio. It is no secret that in many markets’ property values have risen over the past few years. Depending on your equity position, credit score and debt to income you may be able to take advantage of this. With interest rates still low a cash out refinance is a viable option. Even if you don’t want to pull out cash it can make sense to lower your term and reduce the number of payments you will make. Getting a loan as an investor is filled with restrictions and red tape, but with the right planning and mindset is far from impossible. Here are five tips to help make your refinance a successful one.

• Run the numbers. All refinances are not created equally. Simply lowering your interest rate does not automatically mean your payment is lower. If your loan amount is increased a lower rate can still mean a higher payment. Investment loans are typically capped at 80-85% of the appraised value. It is important that you do some homework before deciding to apply for a loan. Unrealistic expectations regarding the cash out or new payment can cost you time, money and do damage to your credit score. Ask your real estate agent to provide you with a ballpark number on the value. This won’t be the exact amount, but it will give you an idea if you should move forward. Next, run some numbers on the loan amount, new payment and the projected cash out. With any refinance a new escrow account must be established, which will eat into your cash out. If you are refinancing to walk away with a certain dollar amount you better make sure you are getting what you anticipate.

• Consider minor improvements. Everything in a refinance is based off the appraised value. The appraisal an estimation of value based on comparable sales and quality of the home. If the numbers make sense and you want to move forward you should do a quick assessment of your property. Small changes, updates and repairs may not do much to improve your value, but it will change the way the appraisal looks at your property. If there are higher comps in the area they are more likely to give you the benefit of the doubt. Additionally, all appraisals must get signed off on by the lender. If the gutter is hanging off the house or a shingle is missing on the roof they may ask for these items to be repaired prior to agreeing to the value. Not only is this something that must be done anyway, but if you wait for the appraisal you may have to pay an additional fee. With any refinance it is always better to be proactive rather than reactive. The more property items you can do prior to the appraisal, the better off you will be.

• Gather documents. There is no getting around the fact that investment loans are more difficult to close than traditional owner-occupied ones. In the eyes of lenders, they are considered a greater risk factor and thus need stronger credit scores, additional documentation and higher equity. Prior to ordering the appraisal you need to sit down with a lender or mortgage broker and discuss the process and any items you will need to supply. Depending on your employment and current portfolio you will need tax returns, paystubs, bank statements and leases. If your tax return is complicated, you will need items specific to your employment or rental properties. The more you can submit at the start of the process the smoother things will go. Refinancing an investment property means you are going to have to supply the lender with whatever they ask for. You may not agree with everything, but there isn’t much negotiating. Start as soon as you know you are going to move forward and get all your documents in order.

• Respond quickly. Most rate locks are either for 30 or 45 days. While interest rates haven’t changed too much over the past few years they are trending higher. No one can predict where rates will go over a 45-day span. If you like your rate you should do everything in your power to make sure you close before the lock expires. That means quickly responding to your lenders request. The longer you wait on getting an item the less likely you will close on time. Simply sending something over doesn’t mean it will be signed off on right away. It can be several days before the item is signed off on and approved.

• Be ready to close. Once your loan is approved and cleared to close your lender can schedule the closing three days later. If there is a rate lock issue you need to be flexible and open to closing whenever it makes sense. This means you will have to carve out a few hours in the day but in the big picture this it is worth it. Extending the rate lock can directly cost you money. Depending on how many days you need or the policy of the lender you could be looking at as much as a quarter point of the loan amount. Time truly does mean money regarding your closing.

Closing a refinance is as much about how quickly you can respond than almost anything else. Use these five tips to help make your next refinance a successful one.

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