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To refinance a rental property, first choose the goal—change the rate or term, reduce the payment, or take cash out—then confirm the loan type, property eligibility, value, and payoff amount with lenders. Compare written offers by total cost and terms, not just the advertised rate. Rules vary by lender and loan program; the Fannie Mae requirements below are examples for eligible conventional loans, not universal rules.
Choose the refinance goal
A rate-and-term refinance changes the interest rate, loan term, or both. A lower rate does not automatically mean a lower total cost: compare the new payment and fees with the remaining term on the current mortgage. A cash-out refinance borrows more than is needed to pay off the existing loan and transaction costs, subject to the lender’s eligibility and loan-to-value limits. Decide how much money you need and how long you expect to keep the property before requesting quotes.
Fannie Mae describes refinancing as an application, approval, and closing process like the original mortgage process, and notes that lenders may offer different terms. Contacting multiple lenders can help you compare proposals (Fannie Mae refinance guidance).
Check which loan framework fits the property
One- to four-unit rental properties
For a property with one to four units, the available path depends on the loan product, ownership and occupancy details, payment history, income, equity, and lender requirements. Fannie Mae’s conventional rules are one reference point, but a lender may have overlays or offer a different type of loan. Ask whether the proposed loan permits the property’s unit count and ownership structure and whether rental income will be used to qualify.
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Properties with five or more units
Five-or-more-unit properties may be financed under a multifamily framework rather than the conventional one-to-four-unit rules. Fannie Mae’s Conventional Properties term sheet describes eligible stabilized properties with at least five units, a maximum 80% loan-to-value ratio (LTV), and a minimum 1.25x debt service coverage ratio (DSCR). It says occupancy is typically stabilized at 90% for 90 days before funding. Replacement reserves and tax and insurance escrows are typically required; standard third-party reports include an appraisal, Phase I environmental assessment, and property condition assessment. The term sheet also describes yield maintenance for fixed-rate loans and declining prepayment premiums for variable-rate loans. These are program-specific terms, so confirm current requirements with a multifamily lender (Fannie Mae Conventional Properties).
Gather the information lenders will need
There is no single universal document checklist across lenders. Start with the facts that affect payoff, eligibility, qualification, and loan sizing; the lender will identify any additional records it needs.
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- Current mortgage: latest statement, existing note date, payment history, and a payoff estimate.
- Property and title: unit count, ownership structure, occupancy, subordinate liens, and any title details relevant to the application.
- Rental finances: current leases and rent information, plus property taxes, insurance, and operating information relevant to the lender’s qualification method.
- Value and equity: a reasonable value estimate and the information needed for the lender’s valuation process.
- Refinance purpose: desired new term and payment, or the amount and planned use of any cash-out proceeds.
Determine whether the loan is limited cash-out or cash-out
Limited cash-out
Under Fannie Mae’s limited cash-out rules, an eligible refinance can pay off an existing first mortgage and finance eligible closing costs, points, and prepaid items. Cash back to the borrower is generally limited to the greater of 1% of the new loan amount or $2,000. Certain uses of proceeds or lien payoffs can change the transaction classification. For example, paying off a subordinate lien that was not used to purchase the property is generally treated as cash-out, subject to stated exceptions. These are Fannie Mae Selling Guide rules, not a guarantee that a specific loan will qualify (Fannie Mae limited cash-out refinance rules).
Cash-out and seasoning
In Fannie Mae’s standard cash-out case, the first mortgage being paid off must generally be at least 12 months old, measured from the existing note date to the new note date. Cash-out eligibility and proceeds also depend on applicable limits and other underwriting requirements (Fannie Mae cash-out refinance rules).
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Fannie Mae has a specific delayed-financing exception for a property purchased for cash within the six months before the new loan’s disbursement. It is not a general six-month ownership rule for all refinance products. The purchase must be arm’s length; the purchase and source of funds must be documented; title must show no existing liens; and other conditions apply. If borrowed funds were used for the purchase, relevant proceeds generally must repay that debt, and remaining payments count in debt-to-income calculations. Gift funds cannot be reimbursed. The loan amount remains subject to documented investment and applicable LTV, combined LTV (CLTV), and high combined LTV (HCLTV) limits (Fannie Mae cash-out refinance rules).
Estimate equity, proceeds, and valuation requirements
Cash available is not simply the property’s value minus the mortgage balance. The new loan must cover the payoff and any financed costs, while the transaction must meet applicable LTV, CLTV, and HCLTV limits based on current value. Exact limits depend on the transaction and eligibility criteria; do not assume one maximum applies to every rental property. Ask lenders for a net-proceeds estimate using a conservative value, then update it after valuation and underwriting.
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An appraisal waiver is not automatic. Fannie Mae’s value acceptance process may let eligible Desktop Underwriter files use a lender-submitted value without an appraisal, but eligibility depends on the transaction and automated underwriting result. Its published table allows eligible investment-property limited cash-out cases up to 75% LTV/CLTV and eligible investment-property cash-out cases up to 60% LTV/CLTV under this appraisal-alternative program. The table excludes two-to-four-unit properties and cases where rental income from the subject property is used to qualify, among other conditions. Those figures are not general refinance caps. Ask the lender whether the specific file receives value acceptance or requires an appraisal (Fannie Mae value acceptance information).
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Compare written offers on total cost and loan terms
Request proposals that use the same loan purpose and assumptions where possible. Compare the complete transaction rather than ranking offers by rate alone.
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| Compare | What to check |
|---|---|
| Rate and pricing | Interest rate, points, fixed or adjustable rate, and whether the quoted terms depend on conditions. |
| Fees and cash flow | Lender and third-party closing costs, monthly principal and interest, escrow treatment, cash required at closing, and estimated net proceeds. |
| Loan structure | New term, payoff handling, eligible use of proceeds, and any effect on the remaining loan term. |
| Qualification and collateral | Valuation method, required reserves, DSCR requirements where relevant, lender overlays, and property eligibility. |
| Exit costs | Prepayment provisions and the cost of selling or refinancing again before the loan matures. |
For a payment-reduction refinance, estimate the break-even period by dividing costs not rolled into the new loan by monthly savings. Then consider whether you expect to keep the property long enough to pass that point and account for the effect of restarting or extending the loan term. This calculation is an estimate, not a substitute for comparing the full amortization and loan terms.
Quick Recap
Complete the application, underwriting, and closing
- Request written proposals. Give lenders consistent information about the property, current mortgage, rental income, desired loan structure, and use of proceeds.
- Submit an application. Provide the documents requested for the borrower, property, leases or rent, existing liens, and current loan payoff.
- Respond to underwriting and valuation. The lender determines eligibility, required valuation, loan amount, conditions, and any reserve or escrow requirements.
- Review final terms before closing. Confirm the payoff, cash to close or proceeds, costs, payment, term, escrows, and any prepayment provisions against the offer you selected.
- Close and verify payoff. Follow the lender’s closing instructions and confirm the prior mortgage is paid off as intended.
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