Currently, the refinance rates are at a historic low, and investors are looking to refinance more than ever before. But uncertainties prevail, and the rates can rebound at any time. In a rush to get hold of the best deal, do not end up making costly investment mistakes. Acquaint yourself with the industry know-how and refi trends to identify pitfalls and make the most of the opportunities. It is intricate to refinance the mortgage on a rental property, and the process has multiple moving parts. So, here are a few common mistakes to avoid if you think you are ready to refi the current loan terms:
Mistakes to Avoid When Refinancing
If you are unfamiliar with refinancing a rental property, you might want to avoid certain situations. There is comprehensive documentation, stringent eligibility criteria, and a few strings attached to the seemingly straightforward procedure. There can be mistakes you would learn while on the way. But we want you to know them before committing to an unsuitable refi deal and regret later.
Considering Only Interest Rates: Indeed, a refi on your current loan can save you significantly on your monthly payments. But, the rates can differ from one lender to another. Several strings can be attached to the terms, such as fees and points. You can land into trouble if rates alone are what you consider. So, have a written agreement, consider other factors to lock your decision, and avoid any surprises along the way.
Refinancing Frequently: As most lenders offer significantly lower rates today, many investors seek to refinance the mortgage on a rental property. At first, it might seem like a wise decision. However, some lenders keep a cap on rental property refinances. Besides, you can land into financial troubles as each refi carries different charges. These costs add up with time, and all your estimated interest savings might go into covering closing costs.
Not Calculating Break-Even Point: If you plan to cut down on your expenses in the long term, calculate the break-even point. This figure helps you determine how the savings can recoup refi costs. Plus, you don’t end up paying more than expected. It will be especially beneficial if you wish to cover the closing costs yourself.
A Few More Points …
Settling With the First Offer: Today, mortgage lenders face fierce competition. You can find varying interest rates, terms and conditions, qualifying criteria, and approval procedures. So it is best to comparison shop and not accept the first offer you get. Even minor differences can save you hundreds of dollars over the life of the loan. But again, don’t just focus on rates; discuss other costs and obtain precise estimates from multiple lenders.
Shopping Too Long: There is a lot of volatility in the mortgage industry. You never know when things flip, for good or for bad. If you are seriously looking to refinance the mortgage on a rental property, don’t keep shopping for too long. Solicit accurate loan estimates from 2 to 3 lenders and choose the best offer that accommodates your unique needs.
Not Considering Income Stability: Before you refinance a rental property, give a good look at your income sources. The economy remains uncertain, and thus, you must ensure you have a sufficient reserve to cover the expected and any unanticipated costs. You don’t want to be locked up with payments if something impacts your income stream. Thus, refinancing is a major move; make sure you can afford the change.
Assume Your Credit Report Is Satisfactory: The times are uncertain. Many lenders are constricting lending criteria to protect personal interests. The mortgage market is transforming rapidly, and so are the credit guidelines. For this reason, you must know your credit score accurately and receive the most suitable offer. Don’t just assume your scores when shopping for a refi deal. It is essential to know that you must not open new credit lines if you are looking to refinance the mortgage on a rental property. Also, don’t make massive purchases or move substantial funds between two accounts, harming your report.
Are You Looking To Refinance The Mortgage On A Rental Property?
Refinances are one of the most sought-after approaches to increase your wealth-building prospects. Therefore, work with a trusted partner to diversify your portfolio, minimize potential investment threats, and maximize your returns. If you would like to explore more about your refi options, reach out to Real Estate Funding Solutions right away. We have been in the business for decades, which gives us the experience to help clients like you find the best mortgage deals for your particular needs. You can connect with us over call on 855-913-8637, and one of our mortgage representatives shall help you with the right solutions. You can also click here to get started.