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You need plenty of equity
Often, equity is the biggest hurdle in this effort. Lenders typically require a cushion of 25 percent or more to refinance a loan secured by a nonowner-occupied house, says Stephen LaDue, a senior loan officer at PrimeLending in Brookfield, Wisconsin. The reason: An owner who has a substantial stake in the property is less likely to default on the mortgage.
"If you're upside down or have a minimal investment, you might walk away," LaDue observes.
Some lenders might be a bit flexible about credit scores, income and cash reserves, but that 75 percent maximum loan-to-value ratio is usually a "hard and fast rule," Chenault adds.
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A second mortgage on the rental house will make refinancing difficult because that lender probably won't agree to remain in the lesser position if the first loan is refinanced. The term for this willingness to go back to the end of the line is "resubordinate."
"Whoever has the second mortgage probably won't be willing to work with us," Chenault says.