Colorado Cash-Out Refinance Rules & Guidelines

Home values have been rising in Colorado recently, with home prices up 3.93% from a year ago. Across Colorado, the median home value stands at $380,800.

With mortgage refinance rates below 4%, Coloradans may want to take advantage and do a cash-out refinance to lower their interest rate and tap some of their home equity.

Interest rates have been dropping during the COVID-19 pandemic, and some lenders are swamped with refinance applications. Learn more below about cash-out refinances in Colorado below to see if now is the right time for you to refi.

Colorado Cash-Out Refinance Overview

Buying a house in Colorado has been shown to be a good investment over the years. The median home price in the state is currently close to $400,000, so plenty of homeowners are doing well with their primary investment.

To keep your property up in Colorado and increase its value, you may want to improve the kitchen or bathrooms, or perhaps add a family room extension and deck. Where are you going to get all that money?

If you do not want to tap your savings, a Colorado cash-out refinance could be for you. This type of loan involves taking out a larger mortgage compared to your original loan and taking the equity in cash. The difference between the new home loan and what is outstanding can be used for your home renovations, or for any purpose you see fit.

Cash-out refinancing is popular in Colorado as homeowners have been enjoying substantial price appreciation over the last 10 years. With a higher property value, you have more equity – as long as you make your loan payments on time.

Let’s look at this example. If you have $200,000 left on your mortgage and your home is worth $350,000, you might be able to refinance your home for $200,000, plus $60,000 for your home renovations. The mortgage could be refinanced with cash out for $260,000.

If you have a current interest rate in the 4’s, you really could benefit by refinancing and saving money. If you have a $260,000 mortgage at 4.65%, you pay $254,000 in interest over 30 years. That is reduced to $192,000 at 3.65%. That’s a huge difference!

Rules & Guidelines on Colorado Cash-Out Refinance

Does doing a cash-out refinance sound like a great idea? It often is, but you need to qualify for your new mortgage. Your credit score and debt to income ratios (DTI) must meet your lender’s requirements.

Depending on the lender and the program, you will need a minimum of a 620 credit score to refinance a home in Colorado. But homeowners with at least a 700 credit score are best.

Most Colorado mortgage companies like to see a DTI of 50% or less. The DTI ratio is your total monthly debt payments divided by your gross monthly income. So, if your total monthly bills are $1,500, and you have a gross income of $4,000, the debt to income ratio is 37.5%.

It also is required to have at least 20% equity in your home to do a refinance. Colorado rules allow you to borrow up to 80% of your home’s value.

Points to Consider With a Colorado Cash-Out Refinance

Before you decide to refinance your Colorado home, consider the following points:

  • Cash-out refinance rates are lower than a home equity loan. With a cash-out refinance, you are refinancing your first mortgage, not taking out a second such as a home equity loan. Rates on first mortgages are always lower, so you can save quite a bit.
  • You don’t need to sell to get your equity. Having equity in your Colorado home is great, but you can’t access it until you sell. But you can if you pull it out with a cash-out refinance. If you use the money effectively on remodeling, you can even make your house worth more.
  • Pay off credit card debt and raise your credit score. Maybe you want to do some home remodeling, but take that extra $10,000 and pay off those credit cards. Your credit score will rise substantially because mortgage debt is viewed as ‘better debt’ by the credit bureaus.
  • Mortgage interest is tax-deductible in some cases: When you pull out your equity, the interest you are charged is tax-deductible if it is used to improve your home.

Final Thoughts on Colorado Cash-Out Refinance Rules & Guidelines

Can you get a lower rate on your mortgage by 1% or so? Do you have at least 20% equity available? Are you planning to stay in your home for a few years? Take a look at the closing costs your lender proposes. See how long you would have to stay in the home to ‘break-even’ on the money you are saving at a lower rate.

If everything lines up and makes financial sense, you could be on your way to a lower interest rate…and getting cash in hand to make those home improvements you have dreamed of for years.

Colorado Cash-Out Mortgage News

  • Colorado Financial Expert Suggests Ways to Reduce Money Stress: As the COVID-19 crisis has caused damage to investors’ portfolios, some of the ways to mitigate some of the fallout are to refinance your mortgage and pull out cash, and switch credit card balances to a zero-interest card. (Denver.CBSLocal.com)
  • Where To Start If You’re Considering a Mortgage Refinance: As mortgage rates have fallen in Colorado since the coronavirus hit the nation in March, many are considering a cash-out refinance to get access to the capital they need. (Coloradan.com)
  • These Are The Cities Where Home Values Will Appreciate the Most This Year: For 2020, Denver is one of the top cities where home value appreciation is expected to be the highest, so now could be a good time to pull cash out and refinance a home in Colorado. (TheMortgageReports.com)

References

Where to Start If You Are Considering a Mortgage Refinance. Accessed at https://www.coloradoan.com/story/sponsor-story/elevations-credit-union/2020/03/12/where-start-if-youre-considering-mortgage-refinance/4976281002/

Homebuyers Take Note – These Are the Cities Where Home Values Will Appreciate the Most This Year. Accessed at https://themortgagereports.com/62377/homebuyers-take-note-these-are-the-cities-where-home-values-will-appreciate-the-most-this-year

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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