How to Refinance Underwater Rental Property

Refinancing Underwater Rental Property

There has been tremendous drop in the value of homes in recent years. Most of home owners who wanted to refinance their mortgage, to benefit from low rates of interest, are now able to do so. But is rental property refinancing the same as residential property refinancing?  How to refinance underwater rental property? How to refinance when borrowers owe much more than the worth of their property.

There have also been some changes in the home refinancing regulations of the government. These plans now allow people to refinance mortgages for up to 125 percent of the current value of their home. People who are thinking of how to refinance underwater rental property on mortgage can also benefit from this change in plans. This will enable them to get reasonable credit to refinance for a more affordable loan.

Refinancing Upside Down Mortgages

If you have an adjustable rate of mortgage which is supposed to reset to an exceptionally higher rate or will need to make a huge payment, then the plan may be your best chance to restructure the loan if you owe much more than the worth of your property.

How to Refinance Underwater Rental PropertyThe lenders ask you to have at least 20 percent of equity in property for a conventional refinance. On the other hand, having no equity makes it virtually impossible. Originally, the refinancing program was limited for up to 105 percent of the present value of the property. Due to the loss in the value of homes across the country, only a few people were ready to take advantage of it. This also involves a great amount of risk.

On the other hand, people who had some equity in the property, shifted to conventional refinancing plans recently. This was drawn by low rates for those who had no equity because of the declining value of the homes. Government backed plans usually state that the real estate should be your primary residence, but in many cases you can get aid also for rental property.

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Investment Properties Refinancing Programs

HARP – (Home Affordable Refinance Program) helps homeowners and landlords to be able to refinance their mortgage with fixed rates for 30 year mortgages. Though at the beginning Home Affordable Refinance Program was only for homeowners, new  regulations of the government added landlords needs to the HARP program.

The latest changes in the 125 percent should invite more people and give option to those who are thinking to refinance underwater rental property. Although, the value of homes has dropped drastically in many states, a majority of people have seen modest declines. In many housing markets of the U.S., a 125 percent plan must be reachable by most of the people who were not able to take up extensive home equity loans on their mortgages.

The revised home affordable refinance plan is less known to the loan modification choices by the government. It is a federal initiative to assist people in restructuring their mortgages to avoid foreclosure.

Usually, the loan modification plan is established for people who are unable to go with their mortgage plans. On the contrary, the refinance program is for people who might get into trouble if they are unable to cut down their mortgage costs or avoid a planned increase in the payments.

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Make sure you have a credit score higher than 700. If you do not, than your first worry should be ‘how do I improve my credit score’. Having a score improved by 30-50 points means you will be getting better rates, and saving money (not only on the mortgage, but on your credit cards too!).

In order to refinance underwater rental property, you will need to have a loan backed by one of the secondary lenders supported by the government. These lenders are the ones that support a majority of mortgages in the United States. So the first thing you need to do is to check if your rental property is owned by Fannie Mae or Freddie Mac. If you are paying a mortgage interest rate more than 5.5%, you better call your loan officer and request a meeting, you can lock a lower rate through the government backed plans.

So What Is The Next Step?

Lets not forget you are probably paying $500-$1000 extra per year in higher interest rates, and credit payments.

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Yes, you might need to invest a small sum to get a grip of things.. But if you think education is expensive.. try ignorance..

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You are probably paying thousands of dollars per year in fees and interests to credit companies which could be going straight to your pocket.

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