You bought a house in one state (let’s say Alabama or Virginia) and now you’re living in another state (let’s say Georgia). You still own the out-of-state property and are hoping to refinance your mortgage to get a better interest rate and save some money. The rules for refinancing an out-of-state property (whether it’s an investment property or a second home) are a bit different than the rules for refinancing a primary home. Here’s what you should know before you start the process:
Typically, there are more hurdles to jump over when you want to refinance an out-of-state home. One of those hurdles has to do with built up equity. As the New York Times noted, your primary home loan to value ratio can be as high as 95%— meaning your equity can be just 5% of the home’s value. However, the required ratio falls to 90% for secondary vacation properties. If you’re renting out your out-of-state property, your property is considered an investment by most lenders. That means you might need a loan to value ratio of 75%.
If you don’t have much equity in your property yet, it can be difficult to refinance.
Income and Liquidity Rules
Lenders tend to have tougher rules when it comes to refinancing a home in a different state—particularly when it comes to income and assets. A lender is going to want to see that you have a few months’ worth of mortgage payments tucked away in your bank account prior to considering your loan. It’s also worth noting that any rental income you anticipate receiving from the property won’t necessarily put the lender’s mind at ease unless you already have evidence of a steady stream of incoming rental payments.
If you’re working with a lender that’s in one state and a property that’s in another, you’ll want to make sure the lender is licensed by the state where your property is located. The National Mortgage Licensing System keeps records of this. They allow consumers to verify that the lender they hope to work with is permitted to do business in the state where their property is located.
Does Refinancing Make Sense?
One last thing to consider when thinking about refinancing an out-of-state property is whether or not doing so makes financial sense. You’ll want to figure out what your break-even point is (or in other words, the point at which refinancing doesn’t cost you money and actually helps you start saving). This will involve determining whether or not you plan on owning the property long enough to reach that point. If not, refinancing can end up being more expensive than sticking with your current mortgage.
If you’re hoping to take advantage of lower interest rates, talk to the mortgage specialists at BrightPath Mortgage today. They’ll help you determine if refinancing your out-of-state property is the right move to make.