How to Refinance a Rental Property
Refinancing a rental property (or other investment property) works much like refinancing a primary home, but lenders generally require more equity, stronger finances and additional documentation. You’ll typically need at least 15% to 30% equity, a 620 credit score and six months of cash reserves.
Choosing to refinance an investment property can make sense if you can lower your rate, improve cash flow or access equity without wiping out the return on your investment.
- Investment property refinances usually come with stricter qualification requirements than primary residence refinances, including higher equity and reserve requirements.
- It’s important to compare the expected savings and benefits of refinancing with the closing costs, new monthly payment and total interest you could pay over time.
- A cash-out refinance gives you access to your property’s equity, but it also increases your loan balance and reduces your available equity.
1. Set a refinance goal
Common reasons to refinance include:
- Lowering your mortgage rate. A lower investment property mortgage rate equals a lower payment. That gives you extra rental income to cover small repairs and improvements, or to start paying off your mortgage early.
- Shortening your loan term. Switching from a 30-year term to a 15-year term may be a good strategy if you want to pay off your investment property loan sooner. Just be sure you can afford the higher payment if you have a vacancy in one or more of the units.
- Tapping equity for improvements. If you’ve built equity in your properties, you may qualify for a cash-out refinance, which involves borrowing more than you owe and pocketing the cash difference. The extra funds can be used to upgrade appliances, spruce up landscaping or even purchase another investment property.
- Paying off a hard money loan used to buy the home. If you were stuck with a high-interest-rate hard money loan to buy a fixer-upper property, you could pay it off with a lower-rate investment refinance loan.
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Increasing your rental income. Successful real estate investors regularly check for ways to improve their return on investment. When you refinance a rental property, you can boost your rental income by:
- Charging higher rents after fixing up or upgrading a property, or
- Paying off smaller rental property mortgages faster to keep more of the rental income as profit.
If you purchased a rental property with cash in the last six months, you may be eligible for a “delayed financing exception.” This is a type of cash-out refinance that allows you to borrow money to replenish cash accounts you used to purchase a home, using the property’s current value instead of what you paid for it. The delayed refinance program comes in handy if you’re trying to build an investment portfolio with limited resources.
2. Check whether you qualify
To qualify for a refinance of your rental home using a conventional loan, you’ll typically need:
| Credit score | 620 is common, though this varies by lender |
| Loan-to-value (LTV) ratio | 70% to 85% |
| Equity requirement | 15% to 30% |
| Debt-to-income (DTI) ratio | 45% is common, but no set maximum |
| Cash reserves | Six months minimum |
| Time since purchase
This only applies if the refinance will pay off the mortgage used to purchase the home.
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Additional requirements to be aware of:
- A home appraisal (to verify the home’s value and market rent). Lenders need to assess your home’s value because it’s serving as collateral for the loan. Plus, if you want to use rental income to qualify, you’ll typically pay an extra fee for a “comparable rent schedule,” which covers the extra legwork the appraiser does to compare other nearby investment properties.
- Title held in your name. Mortgage lenders will only lend on your property if the title is held in your name. Investors who form LLCs or partnerships to limit their liability may have to transfer the title into their individual names to complete an investment property refinance. Cash-out refinances may come with an additional six-month seasoning requirement, though the time may be reduced if you gained the property via inheritance or the property was previously owned by your LLC.
- Additional cash reserves. You must have cash reserves equal to six months of mortgage payments for an investment property refinance. If you own other financed properties, you may also need additional reserves. Those additional reserves aren’t calculated as a set number of monthly mortgage payments for each property. Instead, they’re based on the aggregate unpaid principal balance (UPB) of the mortgages and HELOCs on your other financed properties. (Your principal residence and the property securing the new loan aren’t included in that additional-reserve UPB calculation.)
Check the chart below to see the additional reserve requirement based on how many financed properties you own:
| Total number of financed properties owned
Including your primary residence and the property securing the loan.
| Additional reserve requirement
As a percentage of aggregate UPB on your other applicable financed properties, not including your primary residence or the property securing the loan.
|
|---|---|
| One to four | 2% |
| Five to six | 4% |
| Seven to 10 | 6% |
Loans backed by the Federal Housing Administration (FHA loans), U.S. Department of Veterans Affairs (VA loans) and U.S. Department of Agriculture (USDA loans) are usually restricted to primary residences. However, there are exceptions for certain refinance programs. In general, you must already have a loan backed by the applicable government program and meet the program’s other eligibility requirements.
For example, an existing FHA loan on a rental property may be eligible for an FHA streamline refinance, while a VA-backed rental property may qualify for a VA interest rate reduction refinance loan (IRRRL). The USDA also offers streamlined and streamlined-assisted refinance options for eligible existing USDA borrowers.
3. Calculate your break-even point
Calculating your refinance break-even point will show you how long you’d need to continue owning the property to recoup your refinance closing costs.
The formula to calculate a break-even point is:
Break-even point = Total refinance costs ÷ Monthly savings
Typically, those monthly savings come directly from the refinance itself. For example, if refinancing costs $8,000 and comes with a monthly payment that’s $250 cheaper, the break-even point is 32 months.
Do cash-out refinances have a break-even point?
There may be no monthly payment savings with a cash-out refinance, since they typically have higher rates, payments and balances than the mortgages they replace.
In those cases, you’ll want to evaluate whether the benefit produced by the cash you take out exceeds the refi costs.
Let’s say you use a cash-out refinance to tap $80,000 of equity to renovate a rental property. Your new refinance loan balance is $180,000, and your closing costs equal 3% of that amount, or $5,400.
After the renovations, you can charge $300 more per month in rent. However, the larger mortgage increases your monthly payment by $100, leaving you with $200 in additional monthly cash flow.
Your break-even calculation would look like this:
Break-even point = $5,400 (refinance closing costs) ÷ $200 (additional monthly cash flow)
In this example, it would take about 27 months for the additional cash flow from the renovated property to recoup your refinance closing costs.
Similarly, if you were to use cash-out proceeds to pay off high-interest debt, the relevant comparison is the cost of extracting that equity versus the cost of keeping the other debt.
4. Compare refinance rates and pick your lender
You should check with at least three to five different mortgage lenders to get the best investment property interest rates at the lowest closing costs. Then, once you’ve found an offer you want to move forward with, you can lock in your rate.
A mortgage rate lock secures the interest rate on your investment property refinance loan, preventing it from increasing before you close — typically for up to 60 days. Lenders usually offer rate locks after approving you for a loan and providing a loan estimate.
Check out LendingTree’s best refinance lenders of 2026.
5. Get your rental refinance documents ready
In addition to standard income documents like pay stubs and W-2s, you’ll need to make sure you have the following documents handy for a rental property refinance:
- Your most recent tax returns. Lenders analyze your Schedule E to determine how much rental income you earn after expenses.
- Mortgage statements. You’ll need monthly mortgage statements for the property you wish to refinance and any other homes you own to confirm the monthly payments.
- Current leases. Lenders will accept a current lease instead of tax returns if you recently purchased the property or it wasn’t rented due to renovations or repairs. If the property was rented within the past few months, the lender may also ask for proof of the security deposit and the first month’s rent.
- Two months’ worth of recent bank statements. Lenders review your bank statements to make sure you meet the cash reserve requirements based on how many financed properties you own. Lenders may also count a portion of funds you keep in a retirement account — like a 401(k) or similar account — as long as there are no restrictions on your access to the funds in an emergency.
- HOA information. Your lender will need to calculate any monthly homeowners association (HOA) payments, so gather your monthly or annual HOA statements to share or upload.
- Closing statements for recently purchased property. To participate in a delayed financing program, you’ll need a copy of the closing statement to verify the property purchase date. You’ll also need documentation of the source of the funds you used to buy the property in cash — the loan proceeds can only be used to replenish those funds.
6. Close your rental property refinance
Before closing, compare your final closing disclosure with your loan estimate. Confirm the interest rate, monthly payment, lender credits, points, cash to close and — if you’re taking cash out — the amount you’ll actually receive.
Expect a longer home appraisal process than a primary residence refinance, since the appraiser has to verify market rent, not just home value. On the bright side, rental property refinances skip the three-day rescission period, so some loans close the same day you sign.
While you may pay 2% to 5% of your loan toward refinance closing costs on a primary residence refinance, you may be charged additional discount points to refinance a rental property if you have a lower credit score.
The extra points don’t necessarily lead to a lower rate, however — they’re meant to pay the lender upfront for the added risk you might default on an investment property loan versus a primary residence loan.
Pros and cons of refinancing a rental property
Pros
- You may lower your interest rate and monthly payment.
- You can tap your home equity, providing funds for renovations, another investment property or other financial goals.
- You can change your loan term, making it longer or shorter to fit your financial needs.
- You may improve the property’s cash flow by reducing your mortgage payment or increasing the rental income you collect each month.
Cons
- You’ll typically pay higher rates than you would when refinancing a primary residence.
- A cash-out refinance reduces your equity, which leaves you with less of a cushion if property values decline.
- Refinancing can increase your total borrowing costs if it results in a higher interest rate or extends the loan term.
- Qualification requirements can be stricter than you would encounter if refinancing a primary residence.
When refinancing may not make sense
- You plan to sell the property before reaching the break-even point.
- Your existing mortgage rate is substantially lower than the rate you could get in today’s market.
- Closing costs outweigh the savings or other benefits you expect to gain from the refinance.
- A cash-out refinance would leave you with too little equity, limiting your ability to sell, borrow against the property or refinance again in the future.
- The refinance would increase your total lifetime interest costs by more than you’re comfortable with.
- The property is in an area where home values are falling, and taking cash out could increase your risk of carrying an underwater mortgage if the value drops further.