Kentucky Cash-Out Refinance Rules & Guidelines

Have you been watching falling interest rates and wondering if it is time to do a cash-out refinance on your Kentucky home? Home prices in Kentucky rose approximately 5% as of early 2020 from the year before, and mortgage rates have fallen as low as 3.29% in recent weeks as COVID-19 pandemic has hit the nation.

With rising home prices and rock-bottom interest rates, applying for a cash-out refinance in Kentucky could be a wise financial move. With a lower payment and equity in your pocket, you could fix up your home, pay off credit cards, fund a college education, and more.

Below is more information about doing a cash-out refi in Kentucky, but act fast because rates may not stay this low for long.

Kentucky Cash-Out Refinance Overview

People who own their homes in Kentucky have spent $200,000 or so on the biggest financial investment of their lives. Spending so much money on your home makes it natural for homeowners to want to improve the home and grow its value. But a major home remodel, such as a kitchen, can cost $20,000 or $30,000. How do you pay for that?

You could get a personal loan or run up your credit cards, but you will pay 15% or 20% interest rates. Another idea is to do a cash-out refinance on your home, especially with mortgage rates in the low to mid-3s right now. A cash-out refinance allows you to get a new, lower-rate mortgage, and pull out thousands of dollars of equity to improve your home.

For instance, if you want to upgrade that 80s-style kitchen with sleek granite countertops, cabinets, tile flooring, and contemporary appliances, you can spend at least $20,000. If you have a $200,000 mortgage and owe $100,000, you could refinance the mortgage for $120,000 and take $20,000 in cash when you close. If your old interest rate was 4.5% and your new one is 3.5%, you may be able to walk away with a similar payment as before.

Rules & Guidelines on Kentucky Cash-Out Refinance

When you apply for a new mortgage loan, you have to qualify for it based on your financial data, credit score, work history and salary, and debt-to-income ratio (DTI). You will need a credit score of at least 640 to qualify for many refinance programs, and a score over 700 is ideal for the lowest interest rates.

Fannie Mae and Freddie Mac prefer borrowers with a back-end DTI of 36% or less. This means your total monthly debt payments, including mortgage, compared to your gross monthly income is less than 36%. But if you are getting an FHA cash-out refinance, you may be able to qualify with a 43% back-end ratio.

You also need to have a minimum of 20% equity in your Kentucky home. Additionally, it is prohibited to borrow more than 80% of your home’s current, appraised value.

Considerations with a Kentucky Cash-Out Refinance

Property values in Kentucky have been rising and interest rates are low, so a cash-out refinance sounds like it makes sense. But consider these points before making your decision:

  • Closing costs in Kentucky average $2.447. You can pay your closing costs when you close the loan or wrap them into the mortgage; you will pay interest over the life of the loan on your closing costs if you choose the latter. Think about how long you plan to stay in the home. If you save $100 per month on your mortgage at a lower rate, you need to stay in the home 24 months to break even. Refinances are best for people who plan to stay in the home for several years.
  • Do you want to take a tax write off when you pull out your equity? New IRS rules state that the money has to be used for substantial improvements to the property. You can’t write off the mortgage interest if you use the money to pay off credit cards.
  • What is your current mortgage interest rate? If it is over 4%, a cash-out refinance may be your best option. But if your rate is in the 3’s, you will not save as much by refinancing. Instead, think about a home equity line of credit (HELOC) or home equity line. These are second mortgages that tap the equity in your home without affecting your first mortgage.
  • If you decide to refinance with a 30-year mortgage, you are restarting the payment clock. This doesn’t make sense if you have paid on your mortgage for 20 years. Consider refinancing into a 15-year mortgage to pay off your loan faster and save interest.

Final Thoughts on Kentucky Cash-Out Refinance Rules & Guidelines

Mortgage interest rates are very low today as the COVID-19 pandemic has taken a toll on the economy. And home values in Kentucky have not dropped appreciably yet, but they could as the recession takes hold. If you have been thinking about a lower interest rate and putting cash in your pocket for home renovations, strongly consider doing your cash-out refinance as soon as you can before economic conditions change.

Kentucky Cash-Out Mortgage News

  • Kentucky Real Estate Market Had Momentum Prior to COVID-19 Pandemic; Future Is Hard to Predict: The median sale price for Kentucky homes was up 5.1% over the year before for a median home value of $168,000. The COVID-19 pandemic is making for an uncertain real estate market in Kentucky now, so people on the fence about refinancing may want to take the plunge before prices drop. (
  • Home Values Were Up 5% in Kentucky in 2019: Home values were climbing at a healthy 5% last year, so homeowners who were thinking about refinancing and pulling out cash were in a good position. Now with rates so low, the time has never been better to get a lower rate and pull out equity. (
  • US Long-Term Mortgage Rates Fall to 3.33%: Lower mortgage rates mean that more people in Kentucky may try to buy a home or refinance their mortgage, but as unemployment swells during the coronavirus epidemic, it is unclear how many of those people will qualify for mortgages. (

Author: Bryan Dornan

Bryan Dornan is a financial journalist and currently serves as Chief Editor of Cash Out Refi 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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