Home prices in Iowa have been rising at approximately 5.2% for the last few years, according to Zillow.com. As Iowans have seen the equity and value of their homes increase, more are being tempted to do a cash-out refinance while interest rates are so low due to the COVID-19 pandemic.
Rates have fallen as low as 3.29% for a 30-year, fixed-rate mortgage as of March 2020. With rates like that, it is possible to significantly reduce your mortgage payment, and pull out cash for whatever you want – home remodels, pay off debt, college expenses, etc.
Thinking about a cash-out refinance? Act quickly because rates could rise and property values could fall as the current recession starts to affect the housing market.
Below is more information about a cash-out refinance in Iowa.
Iowa Cash-Out Refinance Overview
When you buy a house in Iowa, you can expect to spend between $100,000 and $200,000, on average. That is the biggest investment in most Iowans’ lives. Spending that kind of money on a home makes people want to improve and enhance their value over time. But a home renovation, such as a kitchen remodel, can cost $30,000. Who has that kind of money lying around?
That’s where a cash-out refinance can help you, especially when interest rates are so low right now. A cash-out refi allows you to refinance to a new, lower rate, and pull out thousands of dollars of your hard-earned equity. Most people put that money into home renovations, which makes the home more enjoyable to live in, and adds value to the property when you sell.
For example, if you want to upgrade your kitchen with new counters, cabinets, flooring, and modern appliances, this could cost about $30,000. If you have a $250,000 mortgage and owe $100,000, you can refinance the mortgage for $130,000 at a lower rate and take the $30,000 in cash at the closing table. If your old rate was in the 4’s and you refinance at 3.5%, you may be able to have the same mortgage payment or even a little less.
Rules & Guidelines on Iowa Cash-Out Refinance
Like any new home loan, you will need to qualify for it based on your financial documents, credit score, work history, and debt-to-income ratio (DTI). Generally, expect to need a 640 to 680 credit score to refinance into a new mortgage, but the best rates are reserved for people with 700 or higher scores.
Also, Fannie Mae and Freddie Mac like borrowers with 36% or less DTI. This is a comparison between your total monthly debt payments and your gross monthly income.
Also, it is required in Iowa to have at least 20% equity in your home, and you cannot have refinanced your home in the previous 12 months. Further, you cannot borrow more than 80% of your home’s current value.
Considerations With an Iowa Cash-Out Refinance
With interest rates so low and property values in Iowa generally rising, it might seem that doing a cash-out refinance makes perfect sense. But it always is wise to consider all the particulars on such a big financial move first:
- You will pay closing costs. In Iowa, they average $1,913. You can pay those in cash at closing or wrap them into your loan. It is vital to consider how long you plan to stay in the home before you refinance. If you save $100 per month on your mortgage with the new rate, it would take 19 months to break even. So, plan to stay in the home for a few years for the refinance to make sense financially.
- If you are planning to write off the interest on your cash-out refinance, the IRS says you only can do that if the equity is being used for ‘substantial improvements’ to your home. You can pay off credit cards with your equity, but you cannot write off the interest in that case.
- Do you have an interest rate in the high 3s or low 4s right now? You may want to keep the first mortgage in place and opt for a home equity loan instead. This is a second mortgage with a fixed rate that allows you to tap your equity without changing your first mortgage. The rates on second mortgages are a bit higher because they are a greater risk to the lender, but you still can save a lot over personal loans or credit cards.
- If you get a new 30-year mortgage, you are starting all over on your payments. If you have paid your loan for 15 years, it may be better to refinance into a 15-year loan so you are not paying 30 more years. The payment is higher, but you’ll own your home faster and save tons in interest.
Final Thoughts on Iowa Cash-Out Refinance Rules & Guidelines
Interest rates across the country are very low right now, and home values have yet to take a serious hit in the current recession. If you have been dreaming about lowering your interest rate and pulling cash out of your Iowa home, consider doing it as soon as possible before financial conditions change.
Iowa Cash-Out Mortgage News
- Iowa Now Allows Remote Online Notarization Amid Coronavirus Pandemic: Iowa has an emergency law in place that suspends the requirement for a notary to be physically present. This change is allowing for easier home purchases and cash-out refinances to take place. (Housingwire.com)
- New Home Sales Drop 15% in March as Coronavirus Hits: Sales of new homes in the US dropped 15% in March as the coronavirus hit the housing market. In Iowa, declining sales could lead to a drop in property values that could affect the plans of those who want to pull cash out of their homes while interest rates are at record lows. (CBS2Iowa.com)
- Home Values Still Rising in Iowa as of End of 2019: Last year, home prices in Iowa rose by 4.52% on average, with a median home price of $145,000. If home prices do not decline during the COVID-19 epidemic too much, Iowans still may be able to do a cash-out refinance to lower their interest rate and pull out cash. (Moneywise.com)