Cash out refinance rental property

[Anonymous]

Hi guys,

This is my first post. I'm hoping to do a cash out refinance of a rental property I own in Virginia.

My credit score has improved (690 to 760) since I got this mortgage back in 2007.

Given where rates are, I should be able to take cash out and still pay less each month for my mortgage.

My questions are:

1. What is the maximum amount I can take out in a cash out refi on a rental property in Virginia?

2. What strategies can I use to get lenders to compete in A) lending me the at the best rate? and B) giving me the most cash out?

3. Any tips on what lenders to use? My mortgage for this rental property is with Wells Fargo. I also have another mortgage on my home with Bank of America. And I recently opened a bank account with a credit union.

Thanks,

CS

[Anonymous]

I forgot to mention about that I'm also looking to refinance my home mortgage. Do you think that would give me any leverage over Bank of America and Wells Fargo, or any other lender? The fact that whoever gives me the best rates will get 2 mortgages? and the bank that quotes a worse rate will lose out on the new mortgage and lose the one they already have.

Perhaps this is overly optimistic. I bought both properties 5 years ago and have never refinanced a mortgage.

Thanks again,

CS

[IOBA]

Do you NEED to refi?   If not, then dont' do it.

I am not an expert on rentals, but typically, the lender wants to see 20-40% equity in the property at all times.  So when refinancing, you would need to take the appraisaed value and deduct the 20-40% from that to find a "lendable" amount.   Then deduct what you currently owe on the mortgage.  Do you have enough equity to do that?

The interest rate may be higher on the rental becuase it is a rental and you are more likely to walk away from it.

Can you show five yrs of rental income?  Do you include it on your taxes?

For your house, the general rule of thumb for a refi is that you must have 10-20% equity left in the house after a refi.   So when refinancing, you would need to take the appraisaed value and deduct the 10-20% from that to find a "lendable" amount.   Then deduct what you currently owe on the mortgage.  Do you have enough equity to do that?

As for which bank is better - it's a matter of opinion.  Call them both up, do NOT identify yourself and give your scenario and ask for their input/thoughts.  Then you would have a better idea of which bank might be the most useful.   Remember, since they dont' know who you are, your specifics, the details may change slightly after you apply.

Let us know what you find out.  

[Anonymous]

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@IOBA wrote:

Do you NEED to refi?   If not, then dont' do it.

I am not an expert on rentals, but typically, the lender wants to see 20-40% equity in the property at all times.  So when refinancing, you would need to take the appraisaed value and deduct the 20-40% from that to find a "lendable" amount.   Then deduct what you currently owe on the mortgage.  Do you have enough equity to do that?

The interest rate may be higher on the rental becuase it is a rental and you are more likely to walk away from it.

Can you show five yrs of rental income?  Do you include it on your taxes?

For your house, the general rule of thumb for a refi is that you must have 10-20% equity left in the house after a refi.   So when refinancing, you would need to take the appraisaed value and deduct the 10-20% from that to find a "lendable" amount.   Then deduct what you currently owe on the mortgage.  Do you have enough equity to do that?

As for which bank is better - it's a matter of opinion.  Call them both up, do NOT identify yourself and give your scenario and ask for their input/thoughts.  Then you would have a better idea of which bank might be the most useful.   Remember, since they dont' know who you are, your specifics, the details may change slightly after you apply.

Let us know what you find out.  

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Hi IOBA,

Given that we are at record low mortgage rates right now, and my credit score is 70 points better than it was 5 years ago, I should be able to refinance at a significantly lower rate. I intend to use the extra cash for investments that have the potential to earn a higher return than the interest I have to pay back on the mortgage. For me, that's a good reason to take the cash out of my rental property.

In regards to the mortgage rate on rental properties being higher, you're right. It's about 0.5% higher, but that would still mean a lower rate than I'm paying now and a lower rate than the potential returns I could get on reinvesting this money elsewhere.

I can show rental income on this property for the past 5 years, and I do include it on my taxes. Thanks for mentioning that though, I will be sure to bring that info when I go to the banks.

Given recent sale prices in the area of my rental property, my current equity in the property is anywhere from 27% (conservatively) to 43% due to appreciation since I bought it. The better the appraisal, the more I can cash out. My goal is to take out the maximum possible leaving only 20% equity in the place so I don't have to pay PMI.

I have a few questions regarding this:

1. Can I do a cash out refi on a rental property in Virginia leaving only 20% equity in the place or will lenders require me to leave a higher percentage of equity in the property since it's a rental?

2. Are there certain lenders that are more likely to let me borrow a higher amount than others? I might even be open to leaving even less than 20% equity in the property if the PMI I pay ends up being less than the potential returns on my investments. I'll have to look at the numbers.

3. Are there any legitimate strategies I can use to get a more favorable appraisal for my rental property with lenders so I can cash out the maximum?

Thanks,

CS

[IOBA]

1. Can I do a cash out refi on a rental property in Virginia leaving only 20% equity in the place or will lenders require me to leave a higher percentage of equity in the property since it's a rental?  Check with each lender - B of A and Wells Fargo.  They will tell you what their guidelines are.   Typically to purchase a rental property, you have to have at least 20% down, sometimes more.

2. Are there certain lenders that are more likely to let me borrow a higher amount than others? I might even be open to leaving even less than 20% equity in the property if the PMI I pay ends up being less than the potential returns on my investments. I'll have to look at the numbers.  No idea.  If you get PMI, you will have to pay it a minimum of 5 yrs or until the LTV is 79%, whichever takes longer.

3. Are there any legitimate strategies I can use to get a more favorable appraisal for my rental property with lenders so I can cash out the maximum?  The lender will contact a third party to arrange the appraisal.  You will not be involved in the process.  Nothing you can do to improve the odds.

[Anonymous]

Thanks for the info, IOBA 

[JM-AM]

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@Anonymous wrote:

Thanks for the info, IOBA 

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You can do a selling cost comparison yourself to have an idea of what it will appraise for. Look at similar pieces of property in the marketable area (at least 3) and do a comparison on them. Will give you a rough estimate of the appraisal.