Can I Refinance My Investment Property With Bad Credit?
As the real estate market across the United States continues to show signs of volatility, many lenders have tightened their investment property interest rates to the point that first time home buyers are finding it virtually impossible to qualify for a loan. In many cases, this is accompanied by an unprecedented amount of down payment requirements. For those who have a positive credit rating and steady employment, the challenge can be meeting those payments and maintaining the monthly payments as a first time home buyer. Some first-time buyers may be able to get a mortgage refinancing through their lender at a lower rate. But, in today’s market, even the most diligent real estate investor may not be able to secure that type of loan.
For people with a poor to non-existent credit score, the road to refinance may still be difficult. The reasons for this are two-fold. First, mortgage rates have continued to drop. While this is good news for the average American, those with less than stellar credit scores find themselves increasingly blocked by the escalating costs of property and personal debt.
This leads to the second reason why many homeowners are being told that refinancing is not an option. Lenders realize that those with lower than optimal credit scores will most likely have to borrow more money from the lender to afford the new, improved loan. When cash reserves are reduced, lenders must resort to increasing the interest rate on the property. If a person has a solid personal debt and a low enough credit score, the lender cannot raise the interest rate without also increasing the monthly cash flow. This means that for those borrowers who do not have enough liquid cash to meet their monthly obligations, a refinance may be their only option.
Of course, some people are able to qualify for lower than ideal lending conditions just by maintaining a positive cash flow. But, if you are a homeowner who has fallen behind on your payments, you know that refinancing is your best option. And, even though investment property interest rates have continued to drop, the overall availability of cash-out loans has actually risen slightly, according to the lenders that I work with.
So, why are interest rates dropping on investment property interest rates? The first factor, of course, is the economy. Low mortgage rates help homebuyers to finance the purchase of their new primary residence. In times when interest rates are near their historical lows, a refinance makes more economic sense than an investment loan. Of course, these same factors also make refinancing more complicated and more difficult for borrowers.
Another reason why the rates on prime investment property interest rates are dropping is the shift in consumer spending. Recent surveys show that consumers are holding back on both purchases and loan terms in order to avoid experiencing financial difficulties in the near future. With unemployment rising and consumers uncertain about the direction of the economy, this hesitation in making purchases puts added pressure on banks to reduce their lending programs. As a result, they’re offering more attractive loan terms that aren’t always available through other sources.
Even though mortgage rates are low, you may still be able to refinance an investment property without getting fixed interest rates higher than what you were paying before. If you own rental properties or second homes, you may want to take advantage of a fixed-rate refinance. For example, some lenders will now offer two-year adjustable interest rates for those who want to lock in lower interest rates in the future. This type of arrangement may allow you to keep your current rental property’s interest rate while getting a lower refinance price on your investment properties.
Don’t forget that when you refinance an investment property, it’s also important to qualify for the best terms possible. To do so, you need to calculate your expected income and compare it to the amount you’re currently spending on your home. If your projected income is less than the closing costs of your primary residence, you can probably get a better interest rate. The rule of thumb is that your projected income should be slightly higher than the combined amount of your primary residence’s closing costs. You can use a mortgage calculator or your financial estimator to determine your estimated monthly expenses and see if you qualify for a lower interest rate.