Kansas Cash-Out Refinance Rules & Guidelines

As Kansas home values have risen 4% over the last year, according to Zillow, more homeowners are thinking about a cash-out refinance to take advantage of their growing equity. Plus, mortgage rates are lower than they have been in months because of the coronavirus pandemic.

Kansans with steady jobs and a good credit score may want to get a cash-out refinance done and lower their rate, plus take thousands of dollars of equity and put it to good use.

Below is information you need to know about cash-out refinances in Kansas and whether it may be the right choice for you.

Kansas Cash-Out Refinance Overview

Buying a home in Kansas is a good, affordable investment, with a median home price of $157,000. Spending that kind of money on a home means most Kansans want to do what they can to improve and maintain their property.

Some of the popular options for home renovations in Kansas include redoing the kitchen or bathroom. But redoing a kitchen can cost $30,000 or more.

Instead of relying on credit cards or personal loans, a great option in this low-interest-rate environment is a cash-out refinance. This loan involves taking on a larger mortgage compared to your first one and taking the equity as cash. The difference between your new and old loan is what you can use for your home renovations.

For example, if you have a mortgage of $200,000 in Kansas and a balance of $100,000, you may refinance the mortgage to a lower rate and take out $30,000 in cash, leaving a new balance of $130,000. If your mortgage interest rate drops from 4.5% to 3.5%, you could see little change in your payment even with a higher balance.

Rules & Guidelines on Kansas Cash-Out Refinance

Doing a cash-out refinance is usually a great idea when interest rates are this low. But you need to qualify. Depending on your Kansas lender, you may need a credit score of 620, 640, or 680 to qualify. Best rates are for people with 740 and higher FICO scores.

If your loan is backed by Fannie Mae or Freddie Mac, you will need a back-end debt-to-income (DTI) ratio of 36% or less. This means your total monthly debt payments each month cannot exceed 36% of your gross monthly income. If you are getting an FHA refinance, you could qualify with 43%.

To qualify, you must have at least 20% equity in your Kansas home, and you cannot borrow more than 80% of its current value.

Considerations with a Kansas Cash-Out Refinance

Property values are rising in Kansas and interest rates are low, so you may like the idea of a cash-out refinance. But think about these factors before making a decision:

  • Closing costs on a refinance in Kansas average $2,500. You can pay those in cash at closing or roll them into your loan (but you pay interest on closing costs for the life of the loan). Before you sign the application, think about how long you will live in the property. It will take approximately 25 months for you to make your closing costs back, assuming you save $100 per month on your mortgage. Plan to live in your home for several years if you refinance.
  • If you want to deduct mortgage interest off your taxes, you need to use the equity to make substantial improvements to your Kansas home, according to the IRS.
  • Is your current interest rate under 4%? You may be better off getting a home equity loan, which is a second mortgage that allows you to take out equity without affecting your first mortgage. Interest rates on home equity loans are higher than first mortgages but still low, compared to personal loans and credit cards. If you cannot save at least .5% on your first mortgage rate, a second mortgage could be a better choice.
  • If you refinance with a 30-year loan, remember you are starting over on your payments. Do you want to still be paying on your home when you’re 80? If not, think about refinancing into a 15-year loan, especially if you have been paying on your mortgage for 10 or more years.
  • Interest rates could be 3.3%, but you need to have a good credit score and DTI to qualify. If you don’t have the best credit, you could benefit by paying down debt before you refinance.

Final Thoughts on Kansas Cash-Out Refinance Rules & Guidelines

The housing market in April 2020 is in a fluctuating state. Because of the COVID-19 pandemic, interest rates are low, but home values have not yet significantly declined. But if the recession is long-lasting, price declines may be inevitable. That is why it could be the smart move to do your cash-out refinance today while rates are low and your property value is still unaffected by the current economic situation.

Kansas Cash-Out Mortgage News

  • Kansas City Home Prices Are Rising Faster Than Dallas, Denver, and Nashville: Home prices in Kansas City, Kansas, and Missouri increased rapidly in 2019, a 4.6% increase over the year before. While it is unclear how much home prices will drop in the current recession, interest rates are very low, so it could be the perfect time for Kansas homeowners to refinance. (Kansascity.com)
  • KC Home Prices Probably Won’t Take a Coronavirus Hit, Zillow Says: A new study from Zillow looked at earlier health epidemics similar to COVID-19 and found that home prices did not fall the way they do in most recessions. This could spell great news for homeowners who want to do a cash-out refinance with a low-interest rate. (Bizjournals.com)
  • House Prices in Kansas Gained 5.7% in February, According to FHFA: Home prices in Kansas continued to rise in February 2020, and the Fed’s pledge to buy unlimited amounts of bonds to encourage lending will probably drive down the average 30-year, fixed mortgage rate to 2.9% in Q2 and Q3 in 2020. (Housingwire.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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