Refinancing an Investment Property: When and How

Refinance a rental when the monthly savings repay the closing costs before you expect to sell or refinance again, or when you need cash and the property's rent can carry the larger loan. On a conventional loan, a rate-and-term refinance can go up to 75% of the appraised value under Fannie Mae's rules, or 85% on a one-unit rental under Freddie Mac's. A cash-out refinance can go to 75% on one unit and 70% on 2 to 4 units with either, and Fannie Mae generally requires 6 months on title and any first mortgage being paid off to be at least 12 months old.

For the other rules lenders apply to rental loans, such as credit scores and the number of financed properties, see tips for getting approved for an investment property mortgage.

Rate-and-term versus cash-out: the conventional limits

Loan-to-value (LTV) is the new loan divided by the property's value. On a refinance, Fannie Mae uses the current appraised value, not what you paid. The table shows Fannie Mae's rules. Freddie Mac sets its own, and the one Freddie Mac figure shown is its rate-and-term limit for one unit; ask the lender which rules apply to your loan. Seasoning means how long you have owned the property or held the existing loan.

Two consequences for a typical rental owner:

• If you owe more than 75% of the value, a Fannie Mae refinance requires paying the balance down at closing. On a one-unit rental, ask whether the lender can deliver the loan to Freddie Mac, whose rate-and-term limit is 85%. Ask for a value estimate before paying for an application.
• A property listed for sale must be taken off the market by the date the new loan funds.

The rental lender also expects reserves: 6 months of the property's payment of principal, interest, taxes, insurance, and dues (PITIA) through Fannie Mae's automated system, plus 2% to 6% of the balances on your other financed rentals and second homes, depending on how many you have. Your own home's mortgage balance is not part of that percentage. If the property is held in an LLC, Fannie Mae counts the LLC's time on title toward the 6 months when you control the LLC, but the property must be deeded to you personally before closing. Conventional loans for investment property covers the pricing and the financed-property limits.

Delayed financing after a cash purchase

If you bought with cash in the last 6 months, Fannie Mae's delayed financing exception lets you do a cash-out refinance without waiting. The conditions:

1. The purchase was arm's length (between parties with no family or business relationship), and the settlement statement shows no mortgage financing.
2. Title shows no liens on the property.
3. The new loan is no more than your documented purchase investment, plus financed closing costs, prepaid fees, and points, and stays within the 75% or 70% limit on the new appraisal.
4. You document where the purchase money came from. If you borrowed it, for example from a home equity line, the cash-out proceeds must go toward paying off that loan, and any payment left on it counts in your debt-to-income ratio.

Renovation spending is not part of the purchase investment, so delayed financing returns at most what you paid for the property.

DSCR cash-out options

A debt service coverage ratio (DSCR) loan qualifies the property on its rent divided by its PITIA, with no personal debt-to-income test. These loans do not follow Fannie Mae's rules; each lender publishes its own. Arch Mortgage Funding's guideline is one example:

A DSCR refinance can help when your tax returns or debt load no longer fit conventional underwriting, or when you want to keep title in an LLC. Compare its rate and any prepayment penalty with a conventional quote before you choose it; DSCR loans explained covers both.

Break-even: will the refinance pay for itself?

Divide the closing costs by the monthly savings to get the months to break even. Example with an assumed new quote:

• Current loan: $255,000 at 8.75%, closed 3 years ago. Principal and interest: $2,006 a month. Balance today: about $249,000.
• New loan: $249,000 at an assumed 7.75% for 30 years. Principal and interest: $1,784.
• Monthly savings: $2,006 - $1,784 = $222. Closing costs, assumed: $6,500.
• Break-even: $6,500 / $222 = 29 months.

If you expect to sell within about 2.5 years, this refinance loses money. For context, Freddie Mac's average 30-year rate on owner-occupied loans was 7.32% on October 22, 2026, and rental loans are priced higher, as interest rates for investment properties explains.

Two adjustments make the math honest:

1. Match the term. Part of the savings comes from restarting a 30-year clock on a loan with 27 years left. Ask for a 27-year or 25-year quote too, and compare total interest over the time you plan to hold the property.
2. Points are deducted slowly. IRS Publication 527 says points on a rental loan are prepaid interest deducted over the life of the loan, not in the year you pay them, so they do not produce a large first-year deduction.

For a cash-out refinance, measure the cost of the new cash, not just the rate. Example: a rental worth $320,000 has a $150,000 loan at 4.0%. A cash-out to 75% LTV is $240,000 at an assumed 8.0%. First-year interest rises from about $6,000 to about $19,200, an extra $13,200 to get $90,000 of cash before closing costs. That is about 14.7% a year on the new money, because the whole old balance moves to the higher rate. A second lien on the rental, or the options in using a HELOC for an investment property down payment, can cost less when the first mortgage rate is low.

When the BRRRR refinance comes up short

BRRRR (buy, rehab, rent, refinance, repeat) depends on a refinance that returns most of your cash. The appraisal and the seasoning rules set how much comes back. Example for a single-family rental:

• Purchase: $150,000 cash. Rehab: $50,000. Purchase closing costs: $5,000. Total in: $205,000.
• Planned value after repairs: $260,000. 75% of $260,000 = $195,000, leaving $10,000 in the deal before refinance costs.

If you bought with a short-term hard money loan instead of cash, a conventional cash-out must wait until that loan is 12 months old. A rate-and-term refinance can pay it off sooner, but returns at most the greater of 1% of the new loan or $2,000.

What to do when the value comes in low:

1. Request a reconsideration of value. Lenders selling to Fannie Mae must offer one borrower-initiated review per appraisal. Point out errors and submit up to five better comparable sales.
2. Compare a DSCR lender's seasoning rule. Arch's guideline, for example, allows a delayed purchase refinance within 6 months. Check the rate and prepayment penalty before you switch.
3. Take the smaller loan and wait if the rent covers the payment, then refinance again once more sales support the value.

The BRRRR strategy guide covers how to set the purchase price so a low appraisal leaves less of your cash in the property.