Prior posts have addressed refinancing your primary home – the place you live in every day. But what if you own another property in Michigan, like a cozy cabin up north in Kalkaska, a lakeside cottage Lewiston, or a rental property in Melvindale? Can you refinance those too?

The answer is usually yes, but it’s often a bit different from refinancing your main home. Lenders see these “non-owner occupied” properties (meaning you don’t live there all the time) as having different risks, so the rules and costs can change.

Let’s look at the key differences when refinancing a Michigan vacation home or an investment property:

1. Higher Interest Rates

This is one of the biggest differences. Generally, you can expect to pay a higher interest rate on a vacation home or investment property refinance compared to your primary residence.

• Why? Lenders see these loans as riskier. If money gets tight, most people will make sure their main home mortgage is paid first before their vacation home or rental property. Because of this extra risk, lenders charge a bit more. You might see rates that are 0.25% to 1% higher than what you’d get for your primary home.

2. Stricter Qualification Rules

Because of the higher risk, lenders are often a bit pickier when you refinance a second home or investment property.

• Higher Credit Score: You’ll likely need a higher credit score to qualify. While a 620 credit score might work for a primary home, you might need a 640-680 (or even higher) for a vacation home and possibly 680 or above for an investment property.
• More Equity Needed (Lower LTV): You’ll generally need more equity in the property. For a cash-out refinance on an investment property, lenders often want you to have at least 25% to 30% equity (meaning your LTV is 70-75% or lower). For a second home, you might still need around 20% to 25% equity depending on the loan.
• Higher Cash Reserves: Lenders may want to see that you have more money saved in your bank accounts (called “cash reserves”). This is to make sure you can still make your mortgage payments even if the property is empty for a while or if unexpected repairs come up. They might want to see enough money to cover 2 to 6 months (or even more) of mortgage payments for all your properties, not just the one you’re refinancing. Retirement accounts, stock/bonds/mutual funds and IRA’s can be used to cover the reserve requirement, and you do not need to have your reserves in your everyday bank account, it is the cumulative amount of all financial assets that lenders look at.
• Debt-to-Income (DTI) Ratio: Your DTI (how much debt you have compared to your income) will still be important, and lenders might want it to be a bit lower than for a primary residence, often around 45% or less.

3. Different Loan Programs

• Conventional Loans are King: Government-backed loans like FHA or VA loans are almost always for primary residences only. The VA has a special refinance program for homes with VA loan regardless if it is your primary residence or not. For vacation homes and investment properties in Michigan, you’ll almost always be looking at conventional loans.
• Appraisal Differences: For an investment property, the appraiser might also look at how much rent the property could earn in the market. This is called a “comparable rent schedule” and helps the lender understand the property’s income potential.

4. Benefits of Refinancing Your Other Michigan Property

Even with stricter rules and higher rates, refinancing a vacation home or investment property can still be a smart move:

• Lower Your Payment or Term: If interest rates have dropped since you first got the loan on your Michigan cabin, you could still get a lower monthly payment or pay it off faster.
• Access Equity: A cash-out refinance could give you funds for improvements on that property, or even help you buy another investment property to grow your portfolio.
• Consolidate Debt: Just like with your primary home, you could use a cash-out refinance to pay off other higher-interest debts.

Refinancing a second property involves more specific details, and it’s essential to understand how these differences impact your overall financial picture.

Do you own a vacation home or investment property in Michigan and want to explore your refinance options? Don’t guess if it’s the right time or which program works for you. With 25 years of experience helping clients across Michigan, I can help you navigate the unique requirements for these types of properties and find a solution that makes sense for your goals. Contact me today for a clear and honest assessment of your vacation home or investment property refinance!