Credit Score

• Financial institutions require higher credit ratings to be eligible for rental property loans than loans for primary residencies. Before applying for a refinance, borrowers should request a copy of their credit reports and make certain they are accurate. Borrowers should correct problems by following the procedures of the credit reporting agency. Paying all bills on time, reducing debt levels and not opening new lines of credit during the refinance process will help borrowers to maintain and improve their credit scores.
  
  

Home Equity

• The amount of equity that an owner has in a rental home is a key determinant of the loan terms the lender will offer. Higher amounts of equity reduce the risks to the bank, making them more willing to provide advantageous terms. An owner should have at least 20 percent equity in the home before seeking to refinance; many lenders will require more. Aside from paying down the existing balance to build equity, rental property owners may also make repairs and improvements to the property, which will increase its value and build equity in the home.
  
  

Shop Lenders

• Though it may be simpler to refinance to a lower rate with the existing loan holder, rental property owners should shop around to find the best deal. Each lender will look at the deal somewhat differently, and the differences may be significant. Owners should contact a number of banks and credit unions to find the best deal. Property owners should expect to find that interest rates for rental properties will be a full point or more higher than for a home mortgage for a primary residence. Owners should compare not only the interest rate for the loan, but also the fees charged to write the loan.
  
  

Tax Planning

• Before refinancing a loan, rental property owners should consult with their accountants or tax professionals to discuss the tax ramifications. With careful planning, the refinance may create many tax advantages for the owner. For example, prepaid taxes or interest that is part of the loan will create tax deductions. Property owners should also plan with their accountants or tax professionals the spending of any money cashed out of the home during the refinance process.