Arkansas Cash-Out Refinance Rules & Guidelines

Home prices in Arkansas have been on the rise from 2019 to 2020, with a 3.8% increase reported by Zillow.com. That fact, coupled with the super-low interest rates during the coronavirus pandemic, could make this the ideal for the Arkansas homeowner to do a cash-out refinance.

With a cash-out refi, you may lower your monthly payment, and get the cash you need to spruce up your home. Interested? Keep reading to learn how you can qualify for an Arkansas cash-out refinance.

Arkansas Cash-Out Refinance Overview

When you buy a home in Arkansas, you may spend between $125,000 and $200,000, on average. After putting so much money into an investment, many Arkansans want to upgrade their home with various improvements, such as a better kitchen, new bathroom, or expanded family room.

Getting the money from a personal loan or credit card will carry a high-interest rate. A better option for many homeowners is to do a cash-out refinance. Get a lower interest rate and pull thousands of equity out of your home to do the remodel of your dreams.

For example, say you have a $200,000 mortgage and you owe $75,000 on it. You could refinance it for $100,000 and take the $25,000 in cash to remodel your kitchen with new appliances, cabinets, flooring, and granite countertops.

An upgraded kitchen adds a lot of value to your property and makes it easier to sell. That is why it is one of the most popular upgrades in America today.

Rules & Guidelines on Arkansas Cash-Out Refinance

When you take out a new loan, there are qualifications you must meet to be approved by the lender. Expect to need a credit score of 640 to 680 to qualify for a Fannie or Freddie-backed loan. If you work with FHA, you can have a lower credit score and get a low rate, but you will have mortgage insurance expenses even if you have more than 20% equity in the home.

You also should have a debt-to-income ratio of approximately 36%, which means your total debt obligations compared to your gross monthly income should not be more than 36%. Some lenders affiliated with the FHA may allow higher DTIs.

Like almost all states, you need at least 20% equity in your property to qualify for a refinance. And you may not take out more than 80% of your home’s appraised value.

Considerations With an Arkansas Cash-Out Refinance

Doing a cash-out refi with rising home values and low-interest rates can be a terrific idea. But consider these factors before you make your decision.

  • Closing costs. Most homes in the state sell for between $100,000 and $200,000. The average closing cost in the state is $2,425. These costs need to be paid when you close the loan, but you may wrap them into the new mortgage if you like. Assuming you save $100 per month on your new, lower interest rate, you would need to stay in the home for about two years to break even on your closing costs. Want to move next year? You might not want to refinance because your closing costs will outweigh your interest savings.
  • Think you can write off the mortgage interest on your cash-out refinance? After changes in the tax laws, you only can do this if you make ‘substantial improvements’ to your Arkansas home.
  • If your current interest rate is 4% or less, you may want to keep your mortgage in place and get a second mortgage. This can be either a home equity line of credit or a home equity loan. You can get a low-interest rate on this money, although not as low as a first mortgage. Closing costs also apply to second mortgages.
  • If you get a new 30-year mortgage, you are starting over on your payments. Starting over on your mortgage may be undesirable if you have made 10 or 15 years of payments already. Look at a 15-year mortgage to see if you can qualify for the higher payments. You’ll pay off your loan much faster, and the rate is lower than a 30-year loan.
  • You will need a new appraisal with your mortgage application, which costs between $300 and $500.
  • Want to improve your credit score before you refinance? The best way is to pay down credit card and personal loan debt. You can raise your score by 20 or more points by paying off a $5000 or $10,000 credit card.

Final Thoughts on Arkansas Cash-Out Refinance Rules & Guidelines

Home values have been on the rise in Arkansas, and interest rates are hovering in the mid-3’s as the COVID-19 epidemic has negatively affected the US economy. Before home prices decline too much as real estate activity slows, consider getting your mortgage refinance application in so you can take advantage of interest savings and put that hard-earned equity in your pocket.

Arkansas Cash-Out Refinance News

  • It Just Got Harder to Refinance a Mortgage: Who Is Going to Face More Difficulty?: Record spikes in jobless claims are creating difficulties for consumers who thought they could do a cash-out refinance in Arkansas. People who are laid off have trouble qualifying for a mortgage, even if they have unemployment insurance. (Arkansasnews.com)
  • NW Arkansas Home Sales Rose 6.3% in 2019: Northwest Arkansas had another hot year in housing in 2019, with more than 10,000 properties sold in Benton and Washington counties. The median home price in this part of the state rose 7% to $208,000. Some in that area are considering low-interest rates and their home equity to do a cash-out refinance soon while home prices hold steady. (Talkbusiness.net)
  • Arkansas Has One of the Most Affordable Housing Markets in the Country: If you have bought a house in Arkansas, you have purchased a home in one of the cheapest parts of the country. And property values have risen in most parts of the state, so it may be time to do a cash-out refinance while rates are so low. (Homesnacks.net)

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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