Alabama Cash-Out Refinance Rules & Guidelines

Home values have been on the rise in the last year in Alabama, with a 5.5% increase year-over-year. This increase means Alabamans’ equity stake in their homes has risen.

Plus, interest rates during the coronavirus are near all-time lows. This is a great time to consider a cash-out refinance to tap some of your equity in Alabama. It is uncertain how long the economic slowdown will run, so it’s smart to pull the trigger on the refi before home values are affected.

Below is more information about an Alabama cash-out refinance.

Alabama Cash-Out Refinance Overview

Buying a home in Alabama is a large investment, and you can spend $200,000 or more. When you drop that kind of cash on your home, you probably want to upgrade and enhance it so that it is more comfortable for your family. This also increases the value of the home when you eventually sell.

But we all know home improvements are costly. For example, one of the renovations that home buyers value most is a kitchen makeover. Depending on how far you go, Homeadvisor.com says it can cost between $14,000 and $40,000. Do you want to pull that cash out of savings or your investments?

Many Alabamans have seen rising property values and have enough equity in their homes to pay for a kitchen makeover. A cash-out refinance can drop your interest rate and give you the cash you need for your new kitchen. Having that sparkling, fancy new kitchen when you put it on the market will make it really appealing to potential buyers.

Let’s say you want to go all-out and want a kitchen upgrade with new tall cabinets, granite countertops, modern lighting and appliances for $40,000. If you owe $100,000 on a $200,000 mortgage, you may be able to refinance it for $140,000 and take the $40,000 to assemble your dream kitchen.

Rules & Guidelines on Alabama Cash-Out Refinance

To qualify for your new mortgage,  follow the rules and guidelines established by the lender and the state of Alabama. You will need a credit score in the mid-600s at least to qualify, but the lowest rates are for people with over a 700 score. Try to keep your debt-to-income ratio at approximately 36% as well; this indicates to the lender that you are not overextended.

Alabama laws require the homeowner to keep at least 20% equity in the property. You may not borrow more than 80% of your home’s value. Your lender will check the current appraisal to determine what your home is worth and exactly how much you can borrow.

Considerations With an Alabama Cash-Out Refinance

A cash-out refi when your Alabama home value is rising and interest rates are falling is usually a good deal. But as with any big financial consideration, it is recommended to consider all sides of the transaction before making the final call.

  • Doing a cash-out refinance may not be the best choice if you have a rate in the 3.5% range. If so, think about doing a home equity loan, which offers a low fixed rate and leaves your first mortgage in place.
  • Have you paid on your mortgage for 10 or 15 years? Then a refinance into a new 30-year loan may not be for you. Consider a 15-year mortgage instead. The payments are higher, but your loan will be paid off much faster and you will save thousands in interest.
  • How you plan to use your equity dictates whether it is tax-deductible interest or not. Current IRS law states if the funds are being used to improve the property, then the interest on the equity you take out is tax-deductible.
  • Do you plan to move soon? You should consider the closing costs on your cash-out refinance. The average closing costs in this state are $2,653 after taxes. If you get a lower interest rate on your new loan and save $100 per month, it would take about 27 months for you to break even and make the cost worth it. If you plan to move before 27 months, you may want to reconsider your refinance.
  • You need to have a good credit score and low debt to qualify for the lowest rates with a Fannie or Freddie-backed mortgage. FHA loans are more forgiving and have low-interest rates, but you may have to pay for mortgage insurance.

Final Thoughts on Alabama Cash-Out Refinance Rules & Guidelines

Home prices in Alabama are rising at a healthy clip, so many Alabamans have cash available to tap. Interest rates are well below 4%, too, so a cash-out refinance can be a simple way to get the cash you need and do that home renovation project you have been thinking of for years.

Alabama Cash-Out Mortgage News

  • COVID-19 Effects on Buying, Refinancing a Home: With interest rates dropping, many Alabamans are considering purchasing or refinancing a home. With the economic uncertainty, is it the right time? May experts say it is a great time because the low rates will rebound as soon as economic activity picks up and investors start pulling money from bonds and putting them into stocks. (WSFA.com)
  • Home Values Are Rising in Alabama: Home values in Alabama rose 4.78% in 2019 from a year earlier and interest rates are well below 4%, so many financial advisors recommend doing a cash-out refinance before home prices drop and interest rates rise. (Moneywise.com)
  • What’s Next For Alabama’s Housing Market in the Pandemic? The housing market in Alabama was off to a fast start in 2020 before the COVID-19 pandemic hit. Housing starts were up 23%. Many experts do not think Alabama will see that much of a housing slowdown in this recession, and the low rates will cause many homeowners to refinance their mortgages. (AL.com)

Author: Bryan Dornan

Bryan Dornan is a financial journalist and currently serves as Chief Editor of Cash Out Refi Tips.com. Bryan has worked in the mortgage industry for over 20 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, Linkedin and ActiveRain.

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