You are ready to refinance that rental property and have lined up a lender. The lender sends you a document request list and lets you know to expect a call from an appraiser to arrange an inspection on your property. Everything should go swimmingly…until it doesn’t. While we can’t claim we’ve seen it all, we can certainly say that nothing surprises us anymore. Based on what we have seen, we are sharing these tips for how to refinance your rental property the right way.
Expected Closing Target
Do your homework and know what your property is likely worth. You will need to know what your refinance goal is and a target date of when you will need to close by.
Make your goals and dates known so we can reach a quick decision given the unexpected.
Make sure you communicate and explain any up-front issues that may put your loan in jeopardy during underwriting review.
Communication
Let your loan processor know what form of communication you prefer and when you are available.
If you never check your email, let the loan processor know. Similarly, if you can’t speak by phone much of the time, let the loan processor know that email is the best mode of communication for you.
If you’re going out of town and won’t be reachable for a few days, let your loan processor know.
Don’t delay in responding to document requests. Various items become “stale” with the passage of time and will require rework. For example, your credit report will only be valid for a set number of months (depending on the lender). If you drag your feet about producing the requested documents, you may find yourself in the position of having to undergo a second hard credit pull.
Property Inspection & Appraisal
If the appraiser leaves you a message about setting up the inspection, don’t delay in returning the call. The file can’t go to Underwriting without the appraisal, so it is best to get this moving along as soon as possible.
Don’t schedule the inspection without advising the tenant. Otherwise, you run the risk of the appraiser turning up and the tenant turning them away.
If you don’t agree with the appraisal report’s conclusion, bear in mind that requesting a revision will require that you to call out something in support of your conclusion the appraiser did not already consider. It can’t just be that you *thought* the property was worth more. We highly recommend providing additional property sales comparisons (and knowing what these are in advance). Please keep in mind that the appraiser will only consider sales comparisons dated prior to the appraisal report date.
Documentation
When responding to document requests, make sure the documents you are submitting are (1) legible, (2) identifiable by file name, (3) official, and (4) current. Sending a large PDF with many different documents make a loan processor’s job much more difficult. Similarly, make sure the information provided meets the specifications. For example, if the request is for the most recent bank statement, don’t send one from months ago. Liquidity can’t be proven with an old statement—there is simply no assurance that the account hasn’t been drained since then.
If your loan processor offers you the use of a secure document portal through which you can submit your documents, use it. Your documents may get misplaced or their security jeopardized if you don’t use a secure system. It is also quite easy for a loan processor to lose documents through a barrage of separate emails. Systems are in place to help check for errors and make it more efficient to review documents by creating order.
Timing – Don’t Delay!
Realize that if you change something about the deal midstream, that seemingly insignificant change may result in a drawn-out delay. For example, if you change your mind about the LLC that is going to serve as the borrowing entity after title work has already been ordered, that means another lien certificate needs to be ordered, which is not a quick turnaround.
If the loan processor identifies an issue at the outset, make sure to address it right away. For example, restoring the borrowing entity to good standing may take longer than you think, so get started on that promptly.
If you change your mind about doing a refinancing and tell the loan processor that you’ve decided to hold off for a few months, know that there may be additional costs incurred when the loan is reactivated; items will have become stale and therefore rework will be required.
It is always easiest (and fastest) to get things right the first time around.
Summary
Having an open line of communication with your loan processor; ensuring that responses to requests for information are timely, complete and submitted property; and having realistic expectations will all help to ensure that the refinance process is as smooth and efficient as possible.
