Minnesota Cash-Out Refinance Rules & Guidelines

Home prices in Minnesota were rising 4.44% year over year before the coronavirus hit with a median value of $263,000, according to Zillow.com. And mortgage interest rates have been approximately 3.3% for the week. If you have been on the bubble about refinancing for cash-out in Minnesota, now could be the time to take advantage of this unique financial opportunity.

Below is the information you need to know about a cash-out refinance in Minnesota.

Minnesota Cash-Out Refinance Overview

With a median home value of $263,000 in the state, buying a home in Minnesota is most people’s most significant investment. When you drop that kind of cash into a property, it’s natural to want to upgrade and improve it as you can. But with all the economic uncertainty these days, who wants to pull $20,000 or $30,000 from savings to fund a rehab project?

A better idea might be to do a cash-out refinance of your first mortgage. This means you replace your home loan with another, lower-rate mortgage and pull out some of your home’s equity to make home improvements.

Depending on your situation, you may be able to refinance your loan for 1% less and pull out $25,000 to upgrade your kitchen, which is one of the best uses of your money for reselling your home, according to Homelight.com.

Rules & Guidelines on Minnesota Cash-Out Refinance

You need to qualify for a new loan to do a cash-out refinance in Minnesota. Expect to need at least a 640 or 680 credit score, depending on your Minnesota lender. Also, try to bump up your score to 700 or higher by paying down debt. Better rates also go to Minnesotans with a debt-to-income ratio of 36% or better. This means comparing your total monthly debt payments to your total gross income is no more than 36%.

Also, it is necessary to have at least 20% equity in your home to pull out cash and refinance. You are not permitted to take out in excess of 80% of your home’s value.

Considerations with a Minnesota Cash-Out Refinance

Home prices have been rising in Minnesota, and rates are near record-lows. So you could really get a good deal with a cash-out refinance right now. But it’s smart to keep these factors in mind:

  • The average home in the state sells for $300,000 to $400,000. You can expect to pay closing costs of $3,621. Many borrowers wrap those costs into the loan, but it is an expense to bear in mind. It is smart to stay in the home at least as long as it takes to ‘break-even’ on what you save with a lower rate compared to your closing costs. Otherwise, you are losing money on the refi.
  • If you are taking equity out of your home to pay off credit card debt, you can save 20% on interest payments. But you are risking your house if you cannot make the payments. Some experts question adding debt onto your home to pay off higher-interest debt.
  • If your current interest rate is under 4%, take a close look at the new rate you can get. If you cannot save at least .5%, consider a second mortgage such as a home equity loan instead. Keep your low first mortgage rate and get your equity with a fixed, low-rate home equity loan.
  • Getting a new home loan means you are starting the 30 years all over again. Probably not a good move if you are 10 years from paying off your loan. See if you can swing the higher payments with a 15-year mortgage instead.

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

As of April 15, 2020, rates for a 30-year fixed-rate mortgage were about 3.3%. The COVID-19 pandemic has brought much of the US economy to a grinding halt and rates are low. But the economic turmoil can be a boon for people with rising home values so they can tap their equity and score a lower interest rate. This low-rate environment is temporary as the economy may pick up in the second half of the year, so consider acting now.

Minnesota Cash-Out Refinance News

  • Thanks to Low Mortgage Rates, Home Prices On the Rise in Minnesota: Thanks to low-interest rates in 2019 and 2020, home values have been rising for single-family homes by 4.97% from a year ago. Current median home values in Minnesota are $238,800. (Moneywise.com)
  • Hot Twin Cities Housing Market Cools Off, Except for Entry-Level Homes: The COVID-19 pandemic has put a chill on property sales in the region for March and April 2020. Homes priced from $250,000 to $350,000 were flat compared to earlier weeks. But some homeowners are still electing to do a cash-out refinance on their mortgages to take advantage of low-interest rates. (Startribune.com)
  • Housing Industry Faces Possible Lost Year As Coronavirus Slows Building and Buying: The building of homes in much of Minnesota is being slowed as materials are slow to arrive and there is much uncertainty about who is going to be able to qualify for home loans and when. People in current homes, however, can take advantage of low rates and refinance. (Twincities.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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