Can I Refinance a Vacant Rental Property?

Can I Refinance a Vacant Rental Property?

In many cases, yes! Here is what you need to know.

Lenders often expect a borrower to have at least six months’ worth of payments in reserve, just in case it stays vacant or becomes vacant later. If you have enough savings to cover a half a year of mortgage payments, that bolsters your case.

Depending on how strong your debt-to-income (DTI) ratio is, your lender’s underwriter may approve a refinance for a vacant property. In most situations, the rental income from your investments counts toward the “I” in your DTI. If your DTI is really close to acceptable standards, having a tenant may be just enough to get your loan approved. Sometimes all you need is a signed long-term lease. In other words, maybe a lease was recently signed but the new tenant hasn’t moved in yet.

Even if your lender is fine with issuing a loan with your property being vacant, maybe you’re not fine with it. Without rent coming in at the moment, will it stress you financially? How soon do you think you can get the place rented? If you’re asking too much for rent, or if you have a vacant commercial property, it may take a little while to fill the space.

What if you’re obtaining a DSCR (Debt Service Coverage Ratio) loan? Some lenders will loan money based upon the amount of rent you have coming in. Many lenders want to see a DSCR of at least 1.25. Using a simplistic example, imagine if your monthly rent is $1,400 and your monthly debt service is $1,000. That results in a DSCR of 1.4. Your lender would feel secure that you can cover the $1,000 mortgage payment. So, if you’re obtaining a DSCR loan, you want the highest possible rent to ensure that you meet the lender’s ratio and to maximize the loan amount.

Some lenders may charge you a higher interest rate if the rental property is vacant. After all, they’re taking on more risk (and so are you!).

Many appraisers using the income approach to valuing your property will use local rental comparables. These comps will give confidence to your lender’s underwriter. If you know that the market rents in the area are strong, then your lender will be much more likely to approve a loan on a vacant property.

Talk to your mortgage loan originator to see what products and situations are ideal for your needs. Use them as a consultant, not just as an ATM. If you need a referral to a lender, drop me a line.

Tai DeSa is a graduate of The Wharton School of the University of Pennsylvania.  He became a full-time real estate investor in 2004 after serving in the U.S. Navy.  Tai made colossal mistakes in investing (and learned some things along the way).  Tai has coached hundreds of entrepreneurs, real estate investors, and real estate agents on how to increase their income and net worth. He has helped hundreds of homeowners avoid foreclosure through successful short sales. Check out Tai’s books on Tai may be available for coaching and speaking engagements on a variety of real estate topics.  Send an email to

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