With the mortgage industry becoming a little more lax with its guidelines, cash out on investment properties is becoming more and more common. Of course the guidelines are stricter than there were in previous years, but just knowing that the possibility is there can greatly enhance your profits on your investment.
Determine your Equity
The more equity you have in your investment home, the more likely it is that you will get approved for a cash out refinance. Generally, lenders will not provide you with a loan that is higher than 75% of the value. If you have significant equity in the home, this will not be a problem for you. The closer that you are to the 75%, the less likely it is that you will get approved. If you are unsure of the amount of equity you have in the home, have an appraisal performed to see where you stand.
The Time Frame
One of the largest determinants regarding whether or not you can get cash out of your investment property is the time frame that you have owned the home. If you have not owned it for more than six months, it is not eligible. In addition, if the home is listed for sale, it is not eligible. Even if the home was listed for sale in the last six months, your loan-to-value ratio is limited to 70%.
In addition to the above qualifications, lenders will be stricter when it comes to determining if you are eligible. In the wake of the mortgage crisis, lenders need to be choosy about what loans they provide. If the loan is risky, they will be hesitant to do it. Cash out refinances have always been risky and with an investment property, they pose an even greater risk. Your first priority when finances get tough would be your primary residence. This means that your investment property comes last. If your renters were to stop paying or you could not find someone to rent the home, you could be in financial trouble and stop paying the mortgage. This is why the qualifications are so much stricter. You can expect to have to provide common documents such as:
- Current pay-stubs
- Last two years W-2s
- Assets that will cover at least six months of payments
- Great credit scores
- Lease information
- Tax documents
Your lender may ask for additional documentation, but this is the most common list of items that are requested for approval of the loan.
Is the Cash Out Worth It?
Stop and think for a moment if the cash out is worth the increased payment you will need to pay. What are you using the money for? Is it to improve the property? If you are investing the money right back into the property and it will net you higher rent or better profits, then it could be worth it. If you are not investing it back into the property or you do not think that your profits will increase as a result, the higher mortgage payment could be a burden that becomes too hard to bear and should be considered very carefully to ensure that it is the right decision for you.
It is not difficult to find a lender that will offer cash out on an investment property, but you should take the time to make sure it is right for you. Talk to various lenders to see what programs are offered and how you can make the cash out work the best for you. In the end, you have to remember that you need to be able to cover all mortgages in order to stay afloat.Click to See the Latest Mortgage Rates»