You can refinance a house you already moved out of, but the loan will be priced and underwritten as an investment property. That means a higher rate, more equity required, and only about 75% of your rent counted as income. If you still live in the house, you may have better options. The order you do things in matters more than most owners realize, and in Phoenix and Scottsdale, where plenty of people keep a first home as a rental when they move up, I see this one a lot.

The occupancy rule that decides everything

Lenders price a loan by how you use the property, and a primary residence gets the best terms. Once you have moved out and a tenant has moved in, you are an investor on paper and in practice, and the loan must say so.

I am direct about this with every client because the other path is a federal problem. Telling a lender you will live in a home when you will not is occupancy fraud, and it is not worth saving half a point of rate. The Consumer Financial Protection Bureau publishes the borrower disclosures you sign, and the occupancy declaration is one of them. Read it before you sign.

What the investment property premium costs

Expect roughly 0.5 to 1 percentage point more in rate on a rental than on a home you live in, on top of a bigger equity cushion. The table shows the payment effect on a $380,000 balance with the 30-year fixed average near NerdWallet's 7.42% APR from October 6.

These are illustrations, not quotes. Real pricing depends on credit, loan to value, and the day. But a three quarter point gap is a realistic planning number, and it costs about $2,360 a year. Then the lender wants more equity. Many investment refinances top out near 75% to 80% loan to value, while owner-occupied loans go higher. If you owe $380,000 on a $480,000 house, you are at 79%, close enough that an appraisal a little low can stop the deal.

A tenant in the house does not change your mortgage. It changes your lender's math.

How lenders count your rent

Most lenders count about 75% of the documented monthly rent, then subtract the full housing payment. The 25% haircut covers vacancy and repairs. If the result is positive, it adds to your income. If it is negative, it counts as a debt.

Run an example. Your tenant pays $2,800 a month. Counting 75% gives $2,100. Your full payment, with taxes and insurance, is $2,950. The rental shows a $850 shortfall, and that $850 is added to your monthly debts. Owners get surprised by this, because the house cash flows fine in real life. The lender's number is not your cash flow. If you want to check your own, our rent out or sell your Arizona home guide has a cash flow worksheet.

Run your own numbers

What the appraisal adds to a rental refinance

On an investment refinance the appraiser does two jobs. First, the value, which sets your loan to value. Second, a rent schedule, which is the appraiser's opinion of what the home should rent for in the open market. If your tenant pays below market, the lender may use the lower of the lease and the schedule. If you charge above market, the lender will not give you credit for the extra.

Plan for the appraisal early. In Maricopa County a house with older systems, a pool that needs work, or unpermitted changes can come in lower than you hoped, and a low appraisal on a 79% loan to value file leaves no room. Fix the small things first, and gather the lease, the last two months of rent deposits, and your insurance declarations page so the file does not stall. Our refinance process shows the order we work in, from the first call to the closing table.

What you need to document

You need a signed lease, proof the tenant has paid, and usually a rent schedule from the appraiser. If you have rented the home for a full year, the lender may use your tax return instead. The IRS explains how rental income and expenses are reported on its Publication 527 page, and your Schedule E is what many underwriters read. Our checklist of documents needed to refinance in Arizona covers the rest of the file.

One trap to avoid: a tenant on a month-to-month verbal agreement is hard to count. Get a written lease before you apply, even if it is the same tenant you have had for years.

Should you refinance before you move?

If you are still in the house and your plans are honestly undecided, refinancing as an owner-occupant is a legitimate move. It is only legitimate if you intend to live there and nothing signed says otherwise. A job transfer with a start date next month, a lease you have already signed, or a listing for the new house you are buying are things I need to know about. They change the answer, and we can often find a clean path, like keeping the current loan and refinancing the rental later.

The alternative is waiting. If your current rate is lower than today's, a refinance of any kind may not help. Our posts on Arizona refinance rates and on refinancing a house you have listed for sale cover the neighboring situations.

Three other ways to get cash or a lower payment

• Keep the loan, change the structure. A recast or a principal paydown can lower the payment without opening a new rate.
• Use a DSCR loan. If the rental income is strong, a lender can qualify the property on its own rent rather than your personal income. It costs more than a conventional loan, but it ignores your ratios.
• Hold the property and borrow against another asset. A second lien on a house you do live in leaves the rental loan alone.

For loan structure rules at the federal level, the Federal Housing Finance Agency publishes the loan limits that apply, and you can compare property types and options on our loan programs page. If you are still searching for your next place, the Arizona Luxury Property Search shows what is on the market in Scottsdale and the rest of the Valley.

Not sure which side of the line you are on? Read about Blake Hermann, then visit pillarmortgagegroup.com, book a call, or use the form below.

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