Refinance Owner Occupied To Investment

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Potential Downsides Of Refinancing

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One downside of refinancing is the closing costs that are included in the loan principal. These are typically about 2% of the loan amount and can total thousands of dollars. The interest you will pay on them may offset any savings that you might have made by refinancing. Another potential downside of refinancing is that it resets the amortization schedule of your monthly payment. Typically, you pay off interest in the beginning when you take out a loan. However, refinancing resets the payment schedule, and you will have to pay off the interest of your loan once again before your payments are put towards your principal balance. Be sure to fully consider your financial situation before deciding that refinancing is the best option for you.

Best Mortgages For Owner Occupied Homes

Therefore, if truly buying a primary residence, there are a ton of great home loan options. They include no money down options such as VA loans, USDA Rural Development, and combining with down payment assistance products. Next, there are several low down payment ways to buy a home such as FHA, HomeReady, Home Posssible, down payment assistance, traditional conventional loans, and more. Then, if building a home options include a construction loan combined with one of the above permanent loans.

With the multitude of home loan options available for buyers today, buying a primary residence is real possibility for most.

Owner Occupied Mortgage Requirements Avoid Occupancy Fraud

At closing, borrowers are not just signing paperwork. Both sides of the transaction are promising to do certain things for the other party. The lender provides the terms of the mortgage loan. Then, the borrower states he/she will follow the terms of the mortgage.

Additionally, the borrower certifies the information provided on the loan application, closing papers, and other documents are true and accurate. These certifications the borrowers make are not just to the lender. These certifications are to the lending agency such as Fannie Mae, Freddie Mac, VA, FHA, or USDA. Thus, providing erroneous information to improve loan terms or even approval is considered mortgage fraud.

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Why Are You Moving To Another Owner

If the home is back-to-back or within a short driving distance, what reason do you have to think that the lender will believe it will not be an investment home? The deal needs to make sense. Are you downsizing due to children being grown and on their own? Are you moving to another owner-occupied home to upgrade due to a growing family? Did you get married or divorced and need to upgrade to a larger home or downsize to a smaller home? There are other reasons besides upsizing or downsizing a home that makes sense to the lender and underwriters. Mortgage underwriters will want you to write a letter of explanation if you are moving to another owner-occupied home and explain occupancy.

Tax Benefits Of Second Homes Vs Investment Properties

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The tax benefits of a second home are very different from those associated with an investment property. The table below shows important differences:

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Tax benefit
Not usually taxable if property is rented less than 14 days per year Must be reported if property is rented more than 14 days per year

One important reminder about the 2018 tax rule changes: You can only deduct mortgage interest for up to $750,000 worth of total mortgage debt, including loans on primary residences, second homes and investment properties. However, that limit increased to $1 million if the property was purchased prior to Dec. 15, 2017.

Its always best to consult with a tax professional to get tax advice to maximize the tax benefits of your second home or investment property.

Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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How To Apply For A Cash

To start the refinancing process, you can often fill out an application online, or you can visit a bank in person.

To refinance your investment property, youll usually need the following documents:

  • Proof of income, such as copies of your W-2 or 1099 forms
  • Recent personal and business tax returns
  • Proof of homeowner insurance
  • Copy of your title insurance

Rental Property Refinancing Requirements

The first step in refinancing your rental property is understanding your purpose for doing so. The second is reviewing if you even qualify for a refinance. Although every lender will have their own qualifying standards, the following provides a general outline of what theyre looking for:

  • Must have a LTV of 75 percent or lower .

  • Borrowers must have good payment history in the past 12 months on current mortgage at the time of the refinance.

  • must be 660 or higher.

  • Financial documents: Tax returns, credit report, statements detailing assets and debts, rental agreement and proof of rental income.

Loan-to-value ratio is quick way for lenders to evaluate how much equity youve built up in your rental property. A lower LTV indicates that you have built up equity in the property, so you should aim to have at least 25 percent equity in your property. This signals that youre less likely to default on your rental property mortgage.

Lenders will also be scrutinizing your personal credit score and eligible rental income. You should aim to have a score of at least 660, and have good payment history in your credit report. They will also evaluate your income, so be sure to report all eligible income, including your rental income. These indicates all help paint a picture of whether or not youre a responsible borrower.

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Why Is The Interest Rate Higher

When an investor obtains a real estate property with a non-owner-occupied mortgage, there is a higher risk of default. With that, the lender protects itself by charging a higher interest rate.

Of course, the borrowers and down payment type will also affect the interest rate. If a borrower has a high credit score and large down payment available, they may receive a lower interest rate. Additionally, the type of property and the number of residences will affect the interest rate.

How Do You Use Rental Income As Income When Qualifying For New Mortgage

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You generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use or occupation of property. Expenses of renting property can be deducted from your gross rental income. You generally deduct your rental expenses in the year you pay them.

There are many cases where a homeowner has an owner-occupied home but rents the home and live elsewhere. Cases like this are common where the homeowner gets married and live with their new spouse and rents out their current owner-occupied home.

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Choosing The Right Home Loan For Your Goals

Itâs very important not to misrepresent your intentions for a property when applying for a home loan. Because of the differences in rates, it might be tempting to try to obtain an owner-occupier mortgage no matter what, but loan agents are trained to evaluate whether their borrowers are committing whats called occupancy fraud.

The differences in rates come down to the amount of risk that tends to accompany each type of home loan. With investment properties, there tends to be a greater chance of default, and therefore more exposure for the lender, among other factors.

There are better ways to ensure youâre obtaining the best possible rates for your mortgage if youâre purchasing an investment property. No matter what type of loan you require, the same tried-and-true tips apply: pay down your existing debts, improve your credit score, and show you can pay off a mortgage.

If youre ready to move into your investment property, or turn your home into an investment, speak with one of our lending specialists today to talk about refinancing.

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Minimum Credit Score Of 640 To 680

Your credit score has a big impact on whether youll qualify for a cash-out refinance. Minimum credit score requirements depend on several factors:

  • Investors with one rental unit: Borrowers with a debt-to-income ratio of 36% or less and an LTV of 75% will need a credit score of at least 660. The requirement increases to 680 or higher for borrowers with a DTI of 45% or less.
  • Investors with two to four units: Borrowers may need a credit score of up to 700, depending on their LTV ratios.

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Is It A Good Idea To Get A Heloc For My Investment Property

Whether its a good idea to get a HELOC for your investment property depends on your individual circumstances, financial goals, and intended use for the HELOC.

A HELOC in general could be a good fit if you want a flexible, ongoing source of financing that you can tap into for virtually any purpose. However, make sure youre comfortable with the variable-rate structure of a HELOC, which can cause your rate and monthly payment to unexpectedly change in the future.

What You Need To Know About Non

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Theyre Available For Up To 80% LTV If youre buying an investment condo to rent out, but the unit needs improvements, the amount you can borrow is based on 80% of the value of the condo after the improvements are made. If the renovated condo will be worth $200K, $160K would be the maximum loan available for purchase and renovations. The final determination of the value of the property is subject to an appraisal done after the renovations are complete.

The Renovations Must Improve the Overall Value of the PropertyExperienced investors know that cosmetic changes done to a property might make it look good to some tenants, but they dont necessarily add resale value. Before securing a non-owner occupied renovation loan, a detailed analyses should be done in order to ensure all improvements that are being financed are going to add resale value to the house so it will appraise for the correct amount after the renovations are complete.

All of the Improvements Must Be Permanently Affixed to the PropertyAn above ground pool would not be a good improvement for this type of loan, but new interior plumbing would.

Theres No Minimum Repair Amount RequiredIn other words, this is the perfect loan whether the property youre buying needs 2 new bathrooms, a new roof and all new wiring, or it just needs a new driveway.

*This product is not regulated by the New York State Department of Financial Services

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What Is Multifamily Lending

Multifamily lending is a type of real estate finance that is used to finance the purchase or refinance of multifamily properties. Multifamily loans are typically used by investors who own or are looking to purchase multifamily properties, such as apartments, duplexes, triplexes, or quadplexes. Multifamily loans can be used for a variety of purposes, such as acquiring a property, refinancing an existing loan, or providing capital for renovations or repairs.

Benefits Of Refinancing Rental Property Assets

There are countless reasons to refinance investment property, but the best reason is always going to be the one that furthers your own exit strategy. That said, any of the following benefits represent a good reason for refinancing rental property:

  • Refinancing rental property assets may allow some investors to switch from a variable interest rate to a fixed rate.

  • Refinancing a rental property at the right time could easily lower the amount investors owe in interest over the life of the loan.

  • In lowering the amount investors owe over the life of a loan, they will also be able to lower monthly obligations.

  • Refinancing a rental home may help investors change the length of the loan they are committed to.

  • Once investors exhibit an acceptable loan-to-value ratio, the lender may remove private mortgage insurance charges from monthly payments.

  • A cash-out refinance may allow investors to take out a loan on their home.

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Where To Apply For A Rental Property Cash

Once you factor all of the above into your decision, you may find that a cash-out refinance on your investment property can help you buy more rental homes or make improvements on existing properties.

The key with this option as with any refinancing is the new mortgage should either lower your monthly payments right away or put more cash flow into your pocket over time. If a non-owner-occupied cash-out refinance has one of those outcomes, then you should speak with a lender who specializes in these loans.

Most of todays lenders offer cash-out refinances on rental properties at similar terms. You can get started on your application now. A loan officer can pre-qualify you and give you a rate and payment quote, which is the first step to making sure this type of mortgage refinance is the right move.

Tim Lucas

Editor

What Documents Are Required To Refinance

Australian Property Podcast – EP37 – Owner Occupied vs Investment

Refinancing investment properties is more complicated than refinancing a mortgage on a primary residence. To go through the refinancing process, youll need to collect the following documents:

  • Proof of income: Youll need to show proof of income, such as recent paystubs or a W-2 from your employer. If you have rental income from tenants, youll need to provide checks, bank statements, or lease documents to show how much you made from the unit.
  • Copy of homeowners, or mortgage insurance:Lenders will require you to show that you have adequate coverage in place for the property.
  • Copies of asset documentation: Lenders want to ensure you can comfortably afford the closing costs and monthly loan payments. Theyll ask you for documentation of your assets, including bank statements, retirement accounts, and investment accounts.
  • Copy of title insurance:Your lender will ask for a copy of the title insurance to verify taxes on the property.
  • Past tax returns:The lender may ask for copies of your past tax returns, especially if youre self-employed.

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What It Meansfor Your Home Loans

Why does it matter? When youre applying for home loans tohelp you buy a house or to refinance an investment property, youll need tospecify whether youre applying for an owner-occupier loan or an investor loan.The distinction will most likely change the rate at which youll be chargedinterest, whether you go with an offset mortgage, variable rates, fixed homeloan or construction financing.

Investment loans are typically the more expensive of thetwo, both in terms of interest rates and additional closing costs, such as theappraisal fee. For example, a variable interest home loan for an owner-occupiermight be available at 3.39 per cent interest. For investmentmortgages, the interest rate for a comparable loan might be 3.89 per cent. If youre looking for the cheapest investment home loan, look forlenders that dont charge high fees. However lower fees may attract internetbased lenders and it is important that you consider this.

Furthermore, you might need to put forward a larger deposit for an investment home loan, meaning your maximum loan-to-value ratio will be higher. In Australia, many major banks and other lenders have recently lowered the maximum LVR and raised interest rates for investor home loans in response to concerns that the lending rate for this type of mortgage is growing too quickly.

Does Pnc Offer Construction Loans

PNC offers construction loans to help customers finance the construction of their new home. The loan is typically interest-only during the construction phase, and then converts to a traditional mortgage once the home is completed. PNC also offers home equity loans and lines of credit that can be used for home improvement projects.

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Owner Occupancy And Interest Rates

Statistically speaking, owner-occupied homes are the least likely to go into default and foreclosure. Therefore, the interest rates offered on owner-occupied properties are lower than those offered on investment properties. Typically, lenders charge .5% to 1% more in interest for investment properties that are not occupied by the owner.

Even on the low end of that expected range, non-owner-occupied borrowers experience a significant increase in their total interest paid, as illustrated below.

In addition to off-market listings, you might also consider For Sale by Owner listings.

While it can be challenging to find FSBO multifamily and commercial real estate, there are several options to search online.

Advantages of Buying Real Estate For Sale by Owner:

Most on-market properties are listed by a licensed real estate broker. At closing, both the listing broker and the buyers broker will receive a percentage of the sales price.

On a large-scale investment property, the broker fees could cost tens of thousands of dollars.

Buying an FSBO property, on the other hand, eliminates broker fees, meaning more money to invest in improvements or other projects.

Residential Property for Sale by Owner:

Perhaps the most well-known FSBO real estate site, For Sale by Owner allows buyers to search for residential listings nationwide.

To find real estate that could be used as occupant-owned properties, start by entering a location.

Finance Other Real Estate Investments

Owner Occupied P& I Var 2.29%, Investment P& I Var 2.54% @ Resimac ...

You may want to use your home equity to finance a down payment if you see a real estate investment that you need to snatch up quickly. As your home grows in value over time, your equity increases in value beyond what you pay on your principal.

You can even parlay this built equity into more profit by using it to put money down on another investment. You might even have bigger goals, such as using the money you get from your refinance to invest in a different type of real estate venture, like a commercial property.

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