Indiana Cash-Out Refinance Rules & Guidelines

Home values in Indiana have been rising in the last year, with a 5.5% average increase across the state, according to Zillow.com, and the median home value is $158,000.

With mortgage rates averaging as low as 3.29% during the COVID-19 pandemic, many Indiana homeowners have wondered if this is the time to do a cash-out refinance. For many of them, the answer is probably ‘yes.’ While rates are low and home prices have not declined, now could be the best time in years to get a lower rate and pull out equity.

Below is more information about doing a cash-out refinance in Indiana.

Indiana Cash-Out Refinance Overview

Housing is generally inexpensive in Indiana, but it is still the most significant investment for most people. When you spend $150,000 or $200,000 on your home, you want to do what you can to upgrade and preserved it over the years. But with so much economic uncertainty today, who wants to pull $10,000 or $20,000 out of savings to remodel your home?

A great idea in today’s low-interest-rate environment is to do a cash-out refinance. This means you replace your old mortgage with a new, lower-rate loan and take out some equity to do those home improvements you want.

Many Indiana homeowners with mortgages from a decade ago may be able to refinance their mortgage for 1% less and pull out $15,000 or $20,000 to upgrade their kitchen; this is one of the best bang-for-your-buck home improvements, according to Homelight.com.

Here’s an example: If your mortgage is $200,000 and you have $100,000 in home equity, you can replace your current mortgage with a new one for $120,000. If you qualify for the loan and you are borrowing less than 80% of the home’s value, you should be able to do this cash-out refinance.

Rules & Guidelines on Indiana Cash-Out Refinance

To do a cash-out refinance in Indiana, you have to re-qualify for a  mortgage. You will need at least a 640 to 680 credit score, and over 700 is better for the best interest rates. Also, a debt-to-income ratio of 36% or less is more likely to be approved. This means your total monthly debt payments compared to your gross monthly income is not above 36%.

If you are doing an FHA loan, you may be able to have a higher DTI and lower credit score, but you probably need to pay for mortgage insurance.

Also, you need 20% equity or more to do a cash-out refinance. Laws and regulations prohibit homeowners in Indiana from borrowing more than 80% of their home’s value.

Considerations with an Indiana Cash-Out Refinance

Because home prices are rising in the state and interest rates are scraping the bottom of the barrel, now is a great time to refinance. But keep these factors in mind before you make the final call.

  • Closing costs in the state average $1,992. The best route to save money is to pay your closing costs when the loan closes. You also can wrap the costs into the loan, but you will be paying interest on that money. Consider how long you will be living in the home before you decide to do your refinance. If you save $1000 per month on your mortgage, you need to stay in the house for about 20 months to break even on your closing costs.
  • If you have a first mortgage interest rate under 4%, your better option could be a home equity line of credit or home equity loan. These are second mortgages that also come with fairly low-interest rates. They can be the source of equity to get your home project completed.
  • Getting a new mortgage means restarting your mortgage payment clock. Have you been paying 10 years on your 30-year loan? Consider refinancing into a 15-year note if you can swing the payment. That way you pay off your loan faster and save tens of thousands in interest.
  • You may be able to write off the mortgage interest on your cash-out refinance if you are using the money to improve your home. New IRS rules state that the money must be used to make substantial improvements to the property to qualify for the tax write off.

Final Thoughts on an Indiana Cash-Out Refinance Rules and Guidelines

As of mid-April, 2020, 30-year, fixed interest rates are approximately 3.3%. The coronavirus pandemic brought much of the US economy to a standstill and has caused rates to plummet. This could be the perfect time to refinance for cash out and score a lower rate, too. The economy may pick up in the fall as the virus fades, so getting a new, lower-rate mortgage with cash out now could be the best move. 

Indiana Cash-Out Refinance News

  • Area Lenders Handle Wave of Refinancing: Many northeast Indiana’s homeowners have found an upside to the COVID-19 virus concerns. Federal Reserve rate cuts have pushed down mortgage rates to as low as 3.29% for a 30-year fixed-rate mortgage, making it a great time to refinance for some borrowers. (FWBusiness.com)
  • Indiana Homeowners Have Been Slow to Refinance During the COVID-19 Pandemic: Refinance applications in the Hoosier State are up 220% compared to 2019. This is a lower rate compared to many other states. (Finance.Yahoo.com)
  • Home Values Have Been Rising Rapidly in Most of Indiana: At the end of 2019, home values had risen a healthy 8% over a year ago, making it a good time to do a cash-out refinance with the low-interest rates. (Moneywise.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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