How Soon Can I Refinance After I Buy An Investment Property?
How soon can real estate investors take out a refinance mortgage after purchasing an investment property?
As the US real estate market recovered and began taking off again in 2011, many new real estate investors were drawn in to take advantage of incredible house bargains. With property so cheap, and competition heating up many purchased homes for cash with aspirations of renovating and reselling or renting them out for a profit.
According to the latest statistics trillions have been added to national net worth. Much of it is credited to real estate. However, many new real estate investors have been caught short, with severe financial and personal consequences. One of the prime culprits of this has been investors that paid cash for investment property, and who have been unable to qualify for a refinance mortgage to release captive equity.
So how soon after buying an investment property can you qualify for a refinance mortgage?
Seasoning Limitations
What many investment property buyers don’t get is that there are many underwriting rules that don’t appear to make common sense on the surface. New ones have been instituted in the wake of the recent crises to limit risk and mortgage fraud. One of the main rules which impact qualifying for many common loan programs is seasoning requirements. As a general guideline this can limit the valuation and LTV based on the original purchase price of the property for a period of time. Often this is 12 months before a new appraised value based on comparable sales can be used for a refinance loan. This can catch investors off guard who bought dirt cheap distressed properties at big discounts, and hoped to refinance based upon new local sales prices, or improvements made. One exception to this can be a dollar amount or percentage allowance for hard improvements made to a property. However, expect this to be vetted by professionals and required to be backed up with a documented paper trail. Talk to your loan officer, and understand the exact requirements and parameters in advance.
Underwriting Quirks & Changing Circumstances that Can Crush Your Refinance
The second major factor which has caught many new real estate investors by surprise when applying for a refinance mortgage is changing personal and financial circumstances.
Among the factors which can harm an investor’s ability to refinance include:
- New credit report inquiries
- Increasing credit card and store card balances
- Local home value fluctuations if others buy and sell cheap
- Loss of a job, or change in career
- Reduced liquid savings or assets
- Property condition
- New mortgage regulations
Investment Property Mortgage Financing Alternatives & Best Practices
With the above in mind many real estate investors may find wisdom and security in using a purchase mortgage for their initial acquisition versus using cash and banking on the ability to refinance later.
Alternatively; those that are already in this predicament may look into home improvement loans or home equity lines of credit to complete renovations and enjoy more financial liquidity.
Anyone considering buying investment properties for cash and refinancing later need to at a minimum need to get pre-qualified, talk to a mortgage loan officer, and find out there loan scenario will fly, as well as potential quirks to avoid, in advance.
