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Refinance 4-Unit Apartment

How do I refinance my four-unit apartment building?

I am looking to refi and pull out $50,000 some for a lot of dental work needed and the rest to cover a vacant apt between renting and repairs so that will sit in the bank. Really, im looking for lower interest rates mine is 6 right now there is 4 apts and I've owned building 10 years and never did refi before, my ex use to handle all of this stuff so Im stuck for where to go how to start and what to do to make sure i get the best deal with a good company.

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Highlights

  • Owners of 1-4 unit apartments may qualify for FHA refinancing.
  • You can cash-out on FHA refinancing if your LTV is low enough.
  • If you do not occupy the building, then look for a commercial loan.

if i understand your question correctly, you have owned a four-unit apartment for 10 years that is mortgaged with a 6% loan, and want a cash-out refinance.

you can apply for a loan with one of bills.com's pre-screened lenders.

you did not mention if you occupy one of the units, which has an impact on the number of loan options available to you, or the balance of the existing mortgage. other unknown variables are your income history on the property and your credit score. each is significant, and your answers to these questions will determine your options.

owner-occupied

if you occupy one of the units in your property, then you may qualify for fha refinancing. the advantage to fha financing is the dept. of housing and urban development insures the mortgage and reimburses the lender should you default. this makes fha loan rates cheaper than non-fha loans, but fha loans come with requirements and limits.

if your ltv (i explain ltv below) is less that 85%, you occupy on of the units in a 1-4-unit apartment building, then you should find an fha-backed cash-out refinance because you have occupied the unit for more than one year. this assumes, of course, that you have a stable income history on the property (or from employment) and have a good credit score.

non-owner-occupied

you may also find cash-out refinances from non-fha loans, but these will probably have a higher interest rate. however, non-fha loans will not have the same requirements.

if you do not occupy the building, or if you had more than four units, then lenders put you into the commercial lending category. residential mortgage brokers do not, generally speaking, deal with commercial lending because it requires a different skill set when selling and analyzing the deal. commercial loans are more expensive than residential loans, and generally have a shorter term. the terms are 15 years or less, as opposed to a 30-year terms common in residential loans.

shopping for a loan

here are four factors or variables you need to be aware of when shopping for a mortgage or refinance.

1) debt to income ratio

your debt-to-income ratio, which is called dti in the trade is calculated by dividing your total income by certain debts you have, such as your principal and interest mortgage payment, property taxes, and homeowners insurance (piti); any credit card or unsecured debt payments; student loan payments, and any vehicle payments. if the monthly payments for those debts take up more than 45% of your income, you will not qualify for a loan. see dti: debt-to-income ratio information to learn more about calculating your debt-to-income ratio.

2) two years income history

in general, residential lenders require anyone on the loan have the same job or work in the same industry for the past two years to have that income included in the qualifying income for a loan. for a rental property, the lender will want to see the p&l and balance sheet for the property.

3) loan to value

your loan-to-value (ltv) is another important component for qualifying for a loan. your ltv is calculated by taking the current market value of the property (what you can sell it for in today’s market) and dividing it by the balance on your mortgage or mortgages. do not use the value that the property tax assessor has assigned to your property, as it does not necessarily reflect the price you would get if you were to sell the property today. the higher the ltv, the harder it is to refinance. some lenders will not refinance a loan if your ltv is above 90%, others even lower. there are some loans available through what is called refi plus that go up to 105% of your ltv, if your loan is serviced by fannie mae or freddie mac. you can find information here about the refi plus program.

4) credit score

lenders use your credit score as an important factor in determining if you will qualify for a mortgage and if so, whether you will qualify for the lowest rates available. everyone should keep track of his/her credit score, because it will have an affect on home loans, car loans, chances to get personal loans or credit cards, landlords for judging the suitability of a prospective tenant, and even can be used by employers in evaluating job-seekers. if you check your credit score now, you can see where it is now and work on building your score, if necessary, in case refinancing or purchasing another home is something you want to do in the future. 

next steps

an appraisal is necessary for a mortgage or a refinance to determine the market value of the property. an appraisal usually costs $350. unofficial estimates of your property's value can be found online.

you will qualify for a residential mortgage refinance if you occupy the building, have a steady, adequate income stream, your dti is 35% or less, and the ltv is 85% or less. download a uniform residential loan application (form 1003), complete it, and start your home mortgage refinance shopping. then, contact one of  bills.com's lending partners for a no-cost, pre-screened refinance quote.

if you do not meet all of the requirements in the previous paragraph, the do not give up because you may qualify for a commercial loan. consult with a commercial mortgage broker about a refinance.

i hope this information helps you find. learn & save.

best,

bill

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