Refinance Your Upside Down Rental
Many real estate investors that bought their rental properties prior to 2007 are upside down in them. Even those that put down 25% or more have seen their equity evaporate with falling real estate prices.
A lot of these investors are also upside in their cash flow with these properties and many we speak with are contemplating walking away from their money-losing properties.
If you’re in that position a new opportunity to refinance your money-losing property into a lower mortgage interest rate, and a lower monthly mortgage payment, may give you just enough extra cash flow to hold on and avoid a credit-ruining foreclosure.
The program is called HARP 2.0 (Home Affordable Refinance Program). The government came out with HARP 1.0 back in early 2009, but had capped the program at a maximum LTV (Loan-To-Value) of 125%. At that time every financial and mortgage expert told the government that the LTV limit was ridiculous, as it took away an incentive for an upside down property owner to NOT walk away. Two and a half years later the government finally figured out the experts were right and so HARP 2.0 has no LTV restrictions.
This means you can refinance your rental property no matter how upside down it is! Now there still some limitations:
- Your mortgage must be a FNMA or FHLMC mortgage originated prior to May 31, 2009.
- You’re only allowed one 30 day late payment on the mortgage in the 12 months preceding a refinance and can’t have any late payments in the 6 months preceding a refinance.
- You still have to show enough income and assets to qualify for a mortgage.
- You may still have to go through the appraisal process, but the appraised value doesn’t matter.
- HARP has been extended until December 31, 2013.
- You can read the entire government press release here.
Your best bet to refinance is to contact your existing lender and discuss what they’re offering for HARP refinances. Many of the larger lenders will refinance existing clients with little or no proof of income or assets. Unfortunately, lenders aren’t required to follow HARP guidelines and several instituted LTV caps of 105% on HARP 10. It remains to be seen what these lenders will do with their internal limitations in response to HARP 2.0.
If your current lender doesn’t seem to be on the ball or to be following what we’ve outlined above, call around and speak with other lenders. The program allows any lender to refinance eligible mortgages.
We hope you find this information helpful – please forward the article to any fellow investors you know that could also benefit from it.