How to refinance an investment property: Equity, credit and the full process

Q: How much equity do I need to refinance a rental property?

Generally 25% to 30%, because most lenders cap investment-property refinances at a 70% to 75% loan-to-value ratio. Divide your current loan balance by the appraised value to find your LTV. If it lands above 75%, you can pay down principal, wait for appreciation, or make value-adding improvements before ordering an appraisal.

Q: Can rental income help me qualify for a refinance?

Usually yes, with documentation. Lenders typically count a portion of documented rental income, often around 75%, to account for vacancy and maintenance. You will need signed leases and the Schedule E from your tax returns showing the property's history. Newly acquired properties without a rental track record are harder to qualify on projected income alone.

Q: How long does it take to refinance an investment property?

Usually 30 to 60 days from application to closing, sometimes longer than a primary residence because underwriting reviews more documentation. The appraisal, lease verification and reserve documentation are the most common delay points. Gathering tax returns, leases, insurance policies and bank statements before you apply is the single biggest time-saver.

Written by Samantha SheltonNMLS 1647301Updated October 2026

Investor standing in front of a brick duplex she plans to refinance as an investment property

Refinancing an investment property runs on the same seven steps as a primary-residence refinance, but the equity bar sits much higher. Freddie Mac caps a cash-out refinance on a one-unit rental at 75% loan-to-value and a two- to four-unit at 70%, so you need 25% to 30% equity first. A rate-and-term refinance, where no money comes back at closing, leaves more room: 85% and 75%.

The rest of the file is read harder too. Fannie Mae wants a borrower on title six months before disbursement, caps debt-to-income at 50% through Desktop Underwriter, and adds reserves worth 2% of the balance on your other financed properties. Pricing runs above owner-occupied, because investors default at higher rates when markets turn.

Learn the equity and reserve rules lenders apply, the seven steps to closing, what the transaction costs, and which programs work on a rental. If you’re earlier in the process, start with our Refinancing & Home Equity guide.

Key takeaways:

Cash-out stops at 75% LTV: Freddie Mac caps a cash-out refinance at 75% loan-to-value on a one-unit rental and 70% on a two- to four-unit, so plan on holding 25% to 30% equity before you apply.
Six months on title, 12 months on the loan: Fannie Mae requires at least one borrower on title for six months before disbursement, and any existing first mortgage you pay off must be at least 12 months old measured by its note date.
Reserves scale with your portfolio: Beyond the subject property, lenders count reserves of 2% of the unpaid balance on your other financed properties at one to four properties, 4% at five to six, and 6% at seven to ten.

What does refinancing an investment property mean?

Refinancing an investment property means replacing the mortgage on a rental you own with a new loan, on new terms, secured by the same property. The mechanics match a refinance on your own home. What changes is occupancy, and occupancy drives every limit.

Rate-and-term refinance: You change the rate, term or structure, and no meaningful cash comes back. Exposure doesn’t grow, so it allows 85% LTV on a one-unit rental and 75% on a two- to four-unit.
Cash-out refinance: You take a larger loan than the payoff and keep the difference, usually for the next down payment or capital improvements. Exposure grows, so the cap drops to 75% and 70%.

That 10-point gap is usually the whole decision. Work out your loan-to-value ratio first, then pick the version your equity supports. Our overview of refinance situations covers the other reasons owners refinance, and buying a home as an investment property covers the purchase side.

What do lenders require to refinance an investment property?

Five gates apply: 25% to 30% equity for a cash-out, debt-to-income at or below 50%, reserves measured against your whole portfolio, six months on title, and a first mortgage at least 12 months old.

Equity and LTV: Cash-out tops out at 75% LTV on one unit and 70% on two to four units; rate-and-term reaches 85% and 75%. Nothing in your credit profile moves these ceilings.
Credit score: Lenders generally look for 620 to 680 or better, with stronger pricing above that. Minimums are lender and program overlays, not one federal number, which is why the same file prices differently at two wholesale lenders. If the score is the obstacle, refinancing with bad credit lays out the fix.
Debt-to-income ratio: Fannie Mae’s maximum through Desktop Underwriter is 50%; manual loans start at 36% and reach 45% with the required score and reserves. Your debt-to-income ratio counts every financed property you own.
Cash reserves: Fannie Mae requires 2% of the aggregate unpaid principal balance of your other financed properties at one to four, 4% at five to six, and 6% at seven to ten. On $600,000 of other rental debt, that’s $12,000 in the bank before closing.
Seasoning: Six months on title before disbursement, and the first mortgage being paid off must be at least 12 months old by note date. Time the property spent in an LLC you majority-own, or in your revocable trust, counts. Inherited and divorce-awarded property carry no waiting period.
Number of financed properties: Fannie Mae allows a maximum of 10 on a second home or investment transaction, and only through Desktop Underwriter. Property 11 goes to a portfolio lender.
Rental income: Lenders count 75% of gross monthly rent from leases or an appraiser’s rent schedule, absorbing the other 25% for vacancy and maintenance. One-unit properties use Form 1007, two- to four-unit properties Form 1025. Properties with a track record use Schedule E instead.
Loan limits: The 2026 baseline conforming loan limit is $832,750 for a one-unit property, up $26,250 from 2025, with higher tiers for two- to four-unit buildings.

Set against a primary residence:

Requirement	Primary residence (1 unit)	Second home (1 unit)	Investment property
Max LTV, rate-and-term refinance	95%	90%	85% on 1 unit, 75% on 2 to 4 units
Max LTV, cash-out refinance	80%	75%	75% on 1 unit, 70% on 2 to 4 units
Reserves tied to other financed properties	Not applied by property count	2% to 6% of aggregate UPB	2% to 6% of aggregate UPB
Cap on financed properties	No limit on a principal residence	10	10
Rental income credit	Not applicable	Not applicable	75% of gross rent, Form 1007 or 1025

Two- to four-unit rentals sit in the tightest column, so refinancing a multi-family home deserves its own read. For the wider picture, see refinancing eligibility.

How to refinance an investment property step by step

Seven steps, typically 30 to 60 days. The documentation load is why this runs longer than a refinance on your own home.

Confirm your equity and your goal: Divide the balance by a realistic value. Above 75% LTV, a cash-out is off the table until you pay down principal, add value or wait for appreciation. Decide whether you want cash, a lower payment or a different term; that choice sets your ceiling.
Check the seasoning clocks: Six months on title, 12 months on the mortgage you’re paying off. If you bought four months ago, the file cannot close yet, however strong it is. A property listed for sale must come off the market by disbursement.
Gather documentation before you apply: Two years of returns with Schedule E, W-2s or 1099s, 60 days of bank statements, every signed lease, the hazard and landlord policies, and the mortgage payoff. Our guide to financing a real estate investment lists the same set.
Shop the scenario across multiple lenders: Investment-property pricing varies more between wholesale lenders than primary-residence pricing does, because each prices occupancy risk differently. Compare Loan Estimates rather than advertised rates, on the same day. Freddie Mac’s Primary Mortgage Market Survey is the reference point; your file will differ.
Order the appraisal: The appraiser sets the value behind your LTV and, on a two- to four-unit, completes the rent schedule. Have leases, rent rolls and improvement receipts ready. If the number comes back short, appealing a low appraisal is a real option.
Underwriting: The underwriter verifies income, recalculates rent at 75%, confirms reserves and re-runs DTI across every property you carry. Most delays are documentation gaps, not credit. If a co-borrower is coming off, see how refinancing to remove a co-signer changes the math.
Close and fund: You sign, pay closing costs or roll them into the balance, and the new loan pays off the old one. A refinance on an investment property carries no federal three-day right of rescission; that protection applies to a principal dwelling.

What does it cost to refinance an investment property?

You pay the same categories as any refinance, on a loan already priced above owner-occupied: lender origination, the appraisal, title work and the lender’s title policy, recording fees, and prepaid interest and escrow. The appraisal line runs higher, because a two- to four-unit report and rent schedule take more work.

Here’s the arithmetic on a duplex. Say it appraises at $280,000 and you owe $180,000, an LTV of 64%. The 70% cash-out cap allows a new loan of $196,000, netting $16,000 before costs, not the $100,000 of equity sitting between the balance and the appraised value. If closing costs run $5,500 and the payment drops $110 a month, you break even in 50 months, so the refinance only pays if you hold past that.¹

Run that break-even test before the appraisal, not after. A line-by-line walkthrough lives in our guide to mortgage closing costs, and refinancing closing costs explains why the list reads differently on a refinance.

Taxes belong in the math too. The IRS is direct that you can deduct mortgage interest you pay on your rental property, and residential rental buildings depreciate over 27.5 years under the general depreciation system. But when you refinance for more than the prior balance, interest allocable to proceeds not related to the rental generally can’t be deducted as a rental expense. Use of proceeds drives deductibility.²

Which loan programs can refinance a rental property?

Conventional financing does most of this work, because the government programs investors ask about are built around occupancy.

Conventional, conforming: The default path. Fannie Mae and Freddie Mac both buy investment-property refinances, up to 10 financed properties per borrower, at the caps above.
FHA: FHA’s cash-out program is built around a principal residence, so it isn’t a way to pull equity out of a rental. The route that does work is the streamline refinance: HUD allows non-owner-occupied properties to be streamline refinanced, but only without an appraisal, and no more than $500 in cash may come out. Useful for a former home you now rent, not for the next purchase.³
VA: A VA cash-out refinance requires you to live in the home. The Interest Rate Reduction Refinance Loan is the one VA loan that doesn’t require occupancy at closing, since prior occupancy is enough, making it the option for a veteran renting out a former residence. An IRRRL can’t close until the later of 210 days from the first payment due date on the loan being refinanced and the sixth monthly payment.⁴
Portfolio and non-agency: When the file breaks a conforming rule, an 11th financed property or income better measured by cash flow than tax returns, portfolio and DSCR lenders offer products underwritten to the rental’s performance. Pricing is higher, but the file has somewhere to go.

Structure matters too: a manufactured home refinance carries its own foundation and title rules, and a second home you sometimes rent is not a full-time rental in underwriting.

What are the alternatives to refinancing an investment property?

If a refinance fails the break-even test or the LTV math, three other tools reach the same equity.

HELOC: A revolving line you draw from during a set draw period, usually at a variable rate, with closing costs well below a full refinance. Availability on non-owner-occupied property is limited and varies by lender. Start with how a home equity line of credit works.
Home equity loan: A fixed lump sum at a fixed rate on its own term, behind your first mortgage. It leaves a low first-mortgage rate untouched, the main reason owners pick it over a cash-out. Weigh it with home equity loan pros and cons.
Second mortgage generally: Both are second mortgages. The distinction that matters is access: a line you draw from repeatedly versus a lump sum you amortize.
Waiting: Holding off is always an option, and often the right one. Paying down principal or finishing improvements to clear the 75% threshold can turn a declined file into an approved one in a quarter. Using home equity wisely covers when leaving equity alone wins, a point argued constantly in investor discussions of leveraging rental equity.

One thing that is not an alternative: a loan modification. That changes your existing loan as a hardship remedy administered by your servicer. It is not a refinance, and it does not unlock equity.

What Michigan rental owners should know

Michigan taxes a rental differently than the house next door, and the difference lands in the cash-flow math an underwriter reviews.

No principal residence exemption on a rental: Michigan’s Principal Residence Exemption exempts a home from up to 18 mills of local school district operating tax. Rental property, income property, vacation homes and seasonal homes are not occupied as a principal residence and cannot claim it. At $18 per $1,000 of taxable value, a rental with $110,000 of taxable value owes roughly $1,980 a year an owner-occupant does not.
That tax line follows the loan: Non-homestead taxes raise the escrow deposit and the payment, which raises the DTI the underwriter calculates. Check the assessment before you model the refinance; our explainer on how property tax assessments work shows where it comes from.
Duplexes and four-plexes are the tighter column: Two- to four-unit rentals are common stock across Metro Detroit and Grand Rapids, and they take the 70% cash-out cap, the 75% rate-and-term cap and the Form 1025 appraisal. Budget extra calendar for that appraisal.

How do you choose a lender to refinance a rental property?

Decide which kind of loan fits the rental first, then shop lenders inside that kind. There are two main paths, and they run on different rules.

Question	Conventional investment refinance	DSCR refinance
How you qualify	Your personal income and debt-to-income ratio, with part of the rent counted	The property’s rent compared with its own payment
Rent history	Usually Schedule E from your tax returns	A lease or the appraiser’s market rent
Whose name is on title	Usually yours, personally	Often an LLC, depending on the lender
Number of financed properties	Fannie Mae caps it at 10	Set by each lender
Prepayment penalty	Generally none	Common, with terms that vary by lender

Read the prepayment terms before the rate

DSCR loans are business-purpose loans, outside the consumer rules that limit prepayment penalties on a home you live in. Many carry one. Common shapes are a flat penalty for a set number of years, or one that steps down each year. If you expect to sell or refinance soon, a lower rate with a long penalty can cost more than a higher rate with none. Ask for the exact terms in the note, not a summary.

Questions for any lender

Which rent counts? The lease, the appraiser’s market rent, or the lower of the two.
What debt-service ratio do you require? And which costs go into the payment you divide by.
How many months of reserves? Ask whether your other financed properties raise the number.
Can the loan close in my LLC? Ask which entity documents you will need.

Shopping is worth the effort. Freddie Mac’s research found that in late 2022, borrowers with two rate quotes could have saved as much as $600 a year. Those with four or more quotes could have saved more than $1,200 a year.

Before you deed a Michigan rental to an LLC

If a DSCR lender wants the property in an LLC, talk to your assessor or your attorney before you deed it over. In Michigan, moving a property from your own name into a company can count as a transfer of ownership, which can uncap its taxable value. A rental already pays the school operating millage a homestead is exempt from, so an uncapped value lands on a bill that is already higher.

Align places conventional investment loans and DSCR loans through multiple wholesale lenders. Samantha can price the same rental both ways from one conversation and show you where the prepayment terms sit in each. See investment property financing.

How Align handles a hard refinance

Low equity, a credit setback or an unusual property can make a refinance look impossible at one lender and workable at another. Lenders add their own rules on top of the program's.

Samantha takes your file to the wholesale lender whose rules fit it, and if waiting is the better move, she tells you that instead.

Already have an offer from your current servicer or one of the big national lenders you see advertised? Bring us the Loan Estimate. We will compare it line by line and show you where we can do better.

Run a refinance break-even review DSCR loans in Michigan

FAQ: Refinancing an investment property

Here are answers to common questions about refinancing an investment property.

How much equity do I need to refinance a rental property?

Generally 25% to 30% for a cash-out, because Freddie Mac caps investment-property cash-out refinances at 75% loan-to-value on a one-unit and 70% on a two- to four-unit. Divide your balance by the appraised value to find your LTV. Above the cap, pay down principal, wait for appreciation or add value first. A rate-and-term allows up to 85%. Our guide to cash-out refinancing walks through the equity math.

Are investment property refinance rates higher than primary residence rates?

Yes. Investors default at higher rates than owner-occupants during downturns, so lenders apply a pricing adjustment to investment-property loans. That adjustment varies noticeably between wholesale lenders, which is why shopping multiple offers matters more here than on a primary residence. The same dynamic shows up on refinancing a second home, though the adjustment is smaller.

Can rental income help me qualify for a refinance?

Usually yes, with documentation. Lenders count 75% of gross monthly rent from leases or an appraiser’s rent schedule, absorbing the other 25% for vacancy and maintenance. You will need signed leases and the Schedule E showing the property’s history. Newly acquired properties without a track record are harder to qualify on projected income alone, one reason real estate investment strategies for beginners emphasize documented rents.

How long does it take to refinance an investment property?

Usually 30 to 60 days, sometimes longer than a primary residence because underwriting reviews more documentation. The appraisal, lease verification and reserve documentation are the most common delay points. Gathering returns, leases, policies and bank statements before you apply is the biggest time-saver, and knowing how the home appraisal process works keeps the longest step predictable.

The bottom line on refinancing an investment property

Refinancing an investment property follows the same seven steps as any refinance, but the ceilings are lower and the file is read harder. Cash-out stops at 75% loan-to-value on a one-unit rental and 70% on a two- to four-unit, meaning 25% to 30% equity before you start; a rate-and-term reaches 85% and 75%. Add six months on title, a first mortgage 12 months old, DTI at or below 50%, reserves of 2% to 6% on your other financed properties, and rent counted at 75% of gross. Run the break-even before the appraisal.

If you’re ready to see what your rental would refinance at, talk to Align Lending, we’ll shop your scenario across our lender network and put the offers and the break-even math in front of you side by side. Call 248-506-5727 or start online today.

Footnotes:

1. Example figures in this article are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. Your loan amount, payment, closing costs and break-even point depend on your application, property value, program and market conditions, and will be itemized on your Loan Estimate and Closing Disclosure. Return to text.

2. This is general information, not tax advice. Deductibility of mortgage interest and points on rental property depends on how the loan proceeds are used and on your individual circumstances. Consult a qualified tax professional about your situation. Return to text.

3. Align Lending is not acting on behalf of or at the direction of FHA or HUD. FHA program requirements are set by HUD in Single Family Housing Policy Handbook 4000.1 and are subject to change. Return to text.

4. Align Lending works with VA-approved lenders and is not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency. VA loan requirements are set by the Department of Veterans Affairs and are subject to change. Return to text.

Sources: maximum LTV/TLTV/HTLTV ratios of 85% and 75% for investment property purchase and no cash-out refinance, 75% and 70% for investment property cash-out refinance, 95% and 80% for a one-unit primary residence, and 90% and 75% for a one-unit second home, Freddie Mac Single-Family, Maximum LTV/TLTV/HTLTV Ratio Requirements for Conforming and Super Conforming Mortgages. Six-month ownership requirement, the LLC and inter vivos revocable trust exceptions, the inheritance and legal-award exceptions, the requirement that an existing first mortgage being paid off be at least 12 months old by note date, and the requirement that properties listed for sale be taken off the market on or before disbursement, Fannie Mae Selling Guide B2-1.3-03. Maximum of 10 financed properties on second home and investment property transactions through Desktop Underwriter, Fannie Mae Selling Guide B2-2-03. Additional reserves of 2% of aggregate unpaid principal balance at one to four financed properties, 4% at five to six, and 6% at seven to ten, Fannie Mae Selling Guide B3-4.1-01. Rental income calculated by multiplying gross monthly rent by 75%, Form 1007 for one-unit and Form 1025 for two- to four-unit properties, and Schedule E documentation, Fannie Mae Selling Guide B3-3.8-01. Maximum DTI of 50% through Desktop Underwriter and 36% rising to 45% on manually underwritten loans, Fannie Mae Selling Guide B3-6-02. 2026 baseline conforming loan limit of $832,750 for one-unit properties, an increase of $26,250 over 2025, effective January 1, 2026, Federal Housing Finance Agency. FHA streamline refinance of non-owner-occupied investment properties permitted only without an appraisal, and cash in excess of $500 not permitted on a streamline refinance, U.S. Department of Housing and Urban Development. VA cash-out refinance occupancy requirement, and IRRRL seasoning at the later of 210 days from the first monthly payment due date and the date the sixth monthly payment is made, U.S. Department of Veterans Affairs and 38 U.S.C. § 3709. Deductibility of mortgage interest on rental property, the limit on interest allocable to proceeds not related to rental use, and the 27.5-year recovery period for residential rental property, IRS Publication 527. Michigan Principal Residence Exemption from up to 18 mills of local school district operating tax, and the exclusion of rental, income, vacation and seasonal property, Michigan Department of Treasury, Principal Residence Exemption Guidelines, MCL 211.7cc and MCL 211.7dd. Weekly average mortgage rate reference, Freddie Mac Primary Mortgage Market Survey.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Loan program rules, LTV limits, loan limits, reserve requirements and tax treatment change and vary by property, county, program and lender; confirm your figures with your Loan Estimate and Closing Disclosure and consult a qualified professional about your situation. Figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.