Michigan Cash-Out Refinance Rules & Guidelines

Have you been eying those low mortgage interest rates in Michigan and thinking about a cash-out refinance? This could be a great time to do it because rates are in the mid-3s, and home prices in Michigan have been rising nicely for the last several years. Zillow reports a 5.2% year-over-year increase in home values for Michigan homeowners.

With low rates and increasing property values, you may be able to get a lower interest rate on your mortgage and pull cash out of your Michigan home to renovate your kitchen, pay off debt, send a child to college, etc.

Keep reading to learn more about doing a Michigan cash-out refinance. But we don’t recommend you wait: Interest rates could head up when the COVID-19 crisis passes, and property values may decline as the recession leads to a drop in economic activity and home purchases.

Michigan Cash-Out Refinance Overview

When you purchased your home in Detroit or Lansing, you made a big financial investment. Most homeowners have a lot of pride in their purchase and want to add value to their home over the years. But if you want to upgrade your kitchen, it can cost $20,000 or $30,000. How will you pay for it?

If you have been paying faithfully on your mortgage for several years, a cash-out refinance loan could be the ticket. People who have a current interest rate of 4% or 5% may benefit by refinancing their mortgage and pulling out equity to remodel their home. Renovating the kitchen is a great way to add value to your Michigan home, as is adding a family room extension.

Let’s say you have a $300,000 mortgage and you owe $150,000 on it. If you qualify, you can refinance and pull out $30,000, leaving you with a new $180,000 loan. If the rate on it dropped by 1%, you may not even pay that much more each month.

Rules & Guidelines on Michigan Cash-Out Refinance

Your Michigan mortgage lender will require you to apply for your new loan and prove that you can make the higher payments because you will have a higher mortgage. Your credit score should be in at least the mid-600s to qualify, but you will get the best rates with a 740 or higher score.

Lenders also look for a debt-to-income ratio of 36% or lower, in most cases. Your DTI is a comparison of your total monthly debt payments to your gross monthly income.

To qualify for a cash-out refinance, you need to have at least 20% equity. You also cannot borrow more than 80% of the home’s value.

Here’s another example: Say your Detroit home has a current appraised value of $250,000 and you owe $150,000. You have $100,000 in equity, which is 40% of the home’s value. You cannot borrow all of that $100,000, but you can borrow $50,000 to upgrade your home. So, you will have a new loan of $200,000 and a check for $50,000 when you close.

Considerations With a Michigan Cash-Out Refinance

Michigan home values are rising 5.2% per year and rates are 3.5%, so a cash-out refinance is a great deal, right? Usually, but it always pays to look at the big picture. Consider these points:

  • You have to pay closing costs when you get your new loan. Michigan closing costs average $2,888. You can pay these costs at closing or wrap them into your new loan. It is important to think about how long you will live in the home. If you save $100 per month on your mortgage, you would need to stay in the home for 28 months to break even. Refinances are generally for people who intend to stay in their homes for a few years at least.
  • You need a new appraisal to qualify for a new mortgage. The lender needs to see if your home is worth what you want to borrow. An appraisal runs about $300 or $500.
  • You may not qualify for the best interest rates unless your credit score is above 700.
  • If you have a low-interest rate in the 3’s, it might not be logical to refinance. Consider a home equity loan instead that leaves your first mortgage in place. It has a fixed rate and allows you to pull out the equity you need.

Final Thoughts on a Michigan Cash-Out Refinance Rules and Guidelines

Interest rates are very low right now as there is so much economic uncertainty in the economy today. Also, home values are rising for now in Michigan, but this could change as the effects of the current recession take hold.

If you have been thinking about a cash-out refinance in Michigan, we recommend getting it done soon as it is unclear how long these economic conditions will last.

Michigan Cash-Out Mortgage News

  • It Just Got Harder to Refinance a Mortgage: Who Will Face More Difficulty: Recent increases in jobless claims are creating new roadblocks for consumers who thought they could get a lower interest rate. Also, people want to pull cash out of their homes to get through tough economic times, but it’s difficult to get a mortgage when you have either lost your job or have reduced hours. (Freep.com)
  • Historic Low Mortgage Rates Leading Many in Michigan to Refinance: One side effect of the COVID-19 crisis is a possible boost to the housing market. Many people in Michigan with higher interest rates from a decade ago have been refinancing their mortgages and getting cash out to weather the current economic storm. (WWMT.com)
  • Much of Michigan Real Estate Market at a Standstill in COVID-19 Outbreak: Realtors in Michigan are unable to show homes, which makes it less likely that sellers will put their homes on the market. This presents a problem for the overall real estate market as prices could drop and affect those who want to take advantage of low rates and refinance. (TCTimes.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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