Investing in Florida property offers excellent returns, but if you’re looking to grow your portfolio further you might be interested in cash-out refinancing. This financial solution could provide you with the capital you need to make another property investment in the Sunshine State. Using cash-out refinance means borrowing against the equity on your existing property. So, in this article, we’re going to dive into Florida cash-out refinance investment property owners can utilize.
- Cash-out refinancing is a viable way to unlock capital using investment property in Florida.
- Florida has some unique rules around cash-out refinancing to be aware of.
- Make sure you meet the lender’s criteria before applying for this finance.
- Although you can refinance on a property as many times as you want, lenders might view multiple cases of refinancing as problematic.
Cash-Out Refinance In Florida
Cash-out refinance is a type of financial strategy that allows you to refinance your existing mortgage to draw out more funds than you currently owe. The difference is made available to you as a cash payment, which can then be used for various purposes. In Florida, cash-out refinancing is a viable way to invest in properties.
To successfully apply for cash-out refinancing in Florida, you’ll need to have enough equity in your existing property to borrow a sufficient amount. There are also other qualifiers you’ll need to pass, such as affordability checks. There is significant legislation and rules around this type of financing for investors due to the heightened risk of the loan. As a result, you can expect to pay higher interest rates than you’d expect to find with a traditional mortgage.
Can You Do Cash-Out Refinance On Investment Property In Florida?
If you’re interested in using Florida cash-out refinance, investment property usage is viable. You can use cash-out refinancing on any investment property you own in Florida, and it gives you the opportunity to leverage your existing equity effectively. This can be quite a complex scenario to deal with alone, so consulting with a professional lender or financial advisor is a good idea.
Considerations When Taking Out Cash-Out Refinance for Investment Properties
Before taking cash out refinance, Florida investment property owners should consider the following:
- Equity: Lenders will likely want greater equity for cash-out refinancing if you’re using an investment property instead of your primary residence. Lender rates will vary, so take some time to review different options.
- Interest Rates: You should expect to pay a higher interest rate if you’re using an investment property. Lenders view investment properties as greater risks, causing interest rates to rise.
- Loan-to-Value Ratio: The LTV ratio for an investment property is more often than not quite lower than primary residences. This means you won’t be able to unlock as much capital.
- Credit Score: Many lenders will look for higher credit scores before offering cash-out refinancing for investment properties.
- Debt-to-Income Ratio: Another area lenders will assess is your DTI ratio. The lower this ratio, the greater your chances of securing a favorable loan.
Why Florida Has Unique Rules For Cash-Out Refinance
Florida has several state laws that focus on lending that could potentially impact cash-out refinancing. Alongside federal laws such as TILA and RESPA, Florida regulations such as the following can apply to cash-out refinancing:
- Florida Fair Lending Act: This act aims to target predatory lending practices in Florida by incorporating provisions that extend federal guidelines. This includes regulating the terms and conditions of high-cost property loans.
- Florida Mortgage Brokerage Lending Act: This act helps to regulate licensing and the operation of mortgage brokers and lenders in Florida.
- Florida Consumer Finance Act: This outlines the rules around consumer loans relating to mortgage lending in Florida.
- Florida Statutes Title XXXIII, Chapter 494: Under this statute, Florida has created specific laws around regulating lenders and mortgage brokers.
Key Considerations For Cash-Out Refinancing
You can really benefit from using cash-out refinance on rental property in Florida, but there are still a few considerations you’ll want to factor into your decision. So, let’s go over these key considerations below to help inform your plan:
The 2% Rule In Florida For Cash-Out Refinance
If you’re in the process of looking for a loan for property investment in Florida, the 2 % rule is something to keep in mind. This rule outlines that the monthly income of your rental property should be at least 2 % of the purchase price of the property. It isn’t enshrined in law, but lenders do use it to determine whether or not your rental setup could effectively pay back mortgage payments.
So, when it comes to actually obtaining cash-out refinance on investment property in Florida, lenders will be looking at why you want the extra funds. If this is for a rental property, you can expect the 2 % rule to apply to your application. To make sure it doesn’t cause you a problem, go to the lender with a clear analysis and outline of how your investment will yield promising results.
Maximum LTV Allowed On A Cash-Out Refinance In Florida
Loan-to-value ratios are used by lenders to assess your application for cash-out refinancing. It is the ratio of what you borrow against how you’ll pay as a deposit. In Florida, most lenders will allow for a maximum of up to 80 % LTV. In real terms, though, this is usually closer to 70 to 75 %. All of this means that your total cash-out refinance loan amount can’t extend beyond 70 to 75 % of your appraised property value.
Refinancing A Rental Property: Taking Money Out
At its core, refinancing a rental property gives you the opportunity to harness existing equity to obtain capital. It can be an incredibly fruitful financial strategy if performed correctly, offering you the chance to reinvest, grow your portfolio, and reap the benefits. As it can get quite complicated, enlisting the help of a real estate investment advisor is a really useful resource. With the right help, you can unlock several benefits when using cash-out refinancing on rental properties in Florida. Some of the perks include:
- Unlocking more capital for future investments.
- Extending your budget by lowering your mortgage payments.
- Obtaining lower interest rates.
- Debt-consolidation purposes.
- More flexible and attractive loan terms over an extended period.
- The ability to expand your existing property portfolio and strengthen your investments.
Just like any other loan, you’ll be expected to stick to the terms of your cash-out refinance. These terms will vary depending on the deal you get, which is why working with professional property investment advice specific to Florida is so important. They can help find you the best possible deal, ensuring you don’t lock yourself into less favorable terms.
Using cash-out refinance investment property Florida wide comes with some tax implications that you’ll want to consider. These implications will vary depending on your individual circumstances, but generally speaking, you’ll want to be mindful of the following areas:
- Mortgage Interest Deduction: Any interest that you pay on your cash-out refinance loan is tax-deductible. This includes interest on additional debt taken out in a cash-out refinance.
- Loan Funds: The funds you receive from your cash-out refinancing are not classified as taxable income, so you don’t need to report it.
- Capital Improvements: If you’re using the money for capital improvements on your rental property, then you can use it to reduce your capital gain taxes when you sell.
- Rental Income: You will still need to report any rental income or expenditure on your tax return.
The Process Of Cash-Out Refinancing
There is a relatively standardized process for you to follow when using cash-out refinancing in Florida. Provided that you adhere to things like the rules about how often you take out refinancing and meet the eligibility requirements, you shouldn’t have too much trouble successfully applying for cash-out refinancing.
Is It Possible To Refinance Investment Property?
Cash-out refinancing is viable for investment properties in Florida, but it might take a little more effort to find the right lender for your circumstances. You’ll also need to meet the right equity requirements with your existing property’s mortgage. With an investor-friendly lender in your corner, the rest of the process should be pretty simple. It typically follows a process similar to this:
- Identifying and working with an investor-friendly lender.
- Working with them to meet the eligibility requirements for cash-out refinancing.
- Submitting the application form with supplementary documentation.
- Take out a property appraisal.
- Wait for the loan to be approved.
- When everything clears, you’ll receive a cash payment and can begin making repayments.
How Many Times Can You Refinance An Investment Property?
Florida is quite flexible when it comes to refinancing your investment property. There is no legal limit to how many times you can refinance an investment property. With that said, the ability to continually refinance will depend on your financial circumstances and the terms outlined by lenders. Generally speaking, lenders view multiple refinances on an investment property as high-risk, which could impact loan interest rates or overall eligibility. Some individual lenders will have set limits on how often they can offer refinancing.
Requirements For A Florida Cash-Out Refinance
To qualify for cash-out refinancing on an investment property in Florida, you’ll have to meet the criteria outlined by lenders. These criteria will often vary from lender to lender, but to give you an idea about what they assess let’s look at some typical requirements:
- Property Equity: One of the basic requirements is holding enough equity in your property. This is generally at least 20 to 30 % equity if you’re wanting to take out a cash-out refinance.
- Credit Score: You’ll also require a strong credit score for this type of finance option. Most lenders will look for a score that exceeds 600.
- DTI Ratio: Your Debt-to-Income (DTI) ratio will also be assessed, which should be around 40 % or under.
- Proof of Income: Proof of income will also be something lenders assess. They will be looking for stable income to ensure the loan can be paid back effectively.
- Property Evaluation: All lenders will ask for a property appraisal to evaluate the value of the property to generate a solid loan-to-value ratio.
Alternative Financing Options
Cash-out refinancing on investment properties in Florida is one viable option for unlocking capital, but there are also a few other options available to you. Let’s take a look at these alternative financing options below:
- HELOC: A home equity line of credit (HELOC) is an open line of credit made available to you. You will be borrowing against your existing equity and interest is paid on what you use.
- Home Equity Loans: Another option is a home equity loan. This gives you access to a lump sum payment against the existing equity on your property and works similarly to a mortgage.
- Personal Loans: Personal loans are also viable, but more risky and often come with higher interest rates. These loans are unsecured and can be obtained through any certified lender.
Benefits And Risks Of Cash-Out Refinancing
To determine whether or not cash-out refinancing on your investment property is right for you, it’s helpful to balance out the benefits and risks of this option. The choice you make will largely depend on how much the pros and cons could impact you, so let’s take a look at these below:
Benefits of Cash-Out Refinancing
- Access to lump sum cash payments.
- Potentially lower interest rates.
- A good option for debt consolidation.
- Comes with tax benefits.
- Useful way to reinvest in your property.
Risks And Drawbacks
Cash-out refinancing isn’t a solution for everyone, which is why learning about the potential risks can help you make a more informed decision. Some of the risks associated with this type of financial product include:
- Increased debt load.
- Potentially higher mortgage payments.
- Longer loan terms.
- Heightened risk of property foreclosure.
Why Refinance Your Rental Property?
There are many reasons to refinance your rental property, but for many, the most compelling reason is that it gives you access to capital. Opting for this route over other financing options can be due to lower interest rates or a more efficient way to consolidate debts. A few common reasons for taking this option include:
- You have an interest rate that is higher than what you could obtain via refinancing.
- You’re dealing with debt from different lenders and wish to consolidate them.
- You want to release funds to be used for property renovations, repairs, or improvements.
- You’re looking to expand your existing property portfolio.