Home prices in New Jersey have been rising for years; the year-over-year increase this year is a solid 2.2% for a median home value of $342,000. However, there are signs that real estate values could drop by up to 12% in New Jersey as the COVID-19 virus hits the real estate market.
If you have been considering a cash-out refinance to get a lower interest rate and tap your home equity, you may want to consider turning in your application before real estate values plunge.
Below is more information about the cash-out refinance process in New Jersey.
New Jersey Cash-Out Refinance Overview
When you buy a house in New Jersey, you spend well over $300,000 at least. Most New Jersians want to upgrade their homes as they can afford it to increase the price of their most important investment. But home remodels can cost tens of thousands of dollars, so where do you get the cash? Credit cards and personal loans have high-interest rates. But your home can be a low-interest source of cash with a cash-out refinance.
A cash-out refinance replaces your current home loan with a new one that has a higher mortgage balance. You can pull out thousands of dollars of equity and make your home more livable and boost its value at the same time.
Let’s say you want to remodel your kitchen for $30,000. If you owe $200,000 on your $400,000 mortgage, you may be able to refinance for $235,000 and take the $35,000 in cash. Depending on current interest rates, you may end up even dropping your payment at the same time.
Rules & Guidelines on New Jersey Cash-Out Refinance
Like any home loan, there are restrictions on who can be approved for a cash-out refinance in New Jersey. You will need to have a credit score of at least 640 or so, and the best interest rates are reserved for applicants with FICO scores in the 700s. You also will need debt-to-income ratios of well below 50%, with some mortgage companies requiring under 36% for the best rates.
Like most states, you should have at least 20% equity in your New Jersey home to qualify for a refinance. And you cannot take out any loan for more than 80% of your home’s current, appraised value. If you meet these standards, you may qualify for a low-interest, cash-out refinance.
Considerations With a New Jersey Cash-Out Refinance
Taking out equity from your home with rising home values and low-interest rates is an attractive proposition. But you should consider the following factors before doing your new loan:
- Closing costs. The average closing costs in New Jersey for a new home loan are between $2,899 and $51,54 for homes worth $300,000 to $400,000. Bear these costs in mind before you sign on the dotted line. It is wise to stay in the home for at least as long as it takes you to break even on the interest you save each month and your closing costs.
- You only can write off the interest on your cash-out refinance if you are using the equity to make ‘substantial improvements’ to your home. Paying off your credit cards? Fine, but you can’t tax deduct the mortgage interest in that case.
- If you have an interest rate below 4% right now, you may want to keep your first mortgage and opt for a home equity loan or home equity line of credit instead (HELOC). These are second mortgages that access your home equity but do not disturb your first mortgage. Rates on second mortgages are higher because lenders are second in line for reimbursement if you default.
- If you use your cash-out refi money to pay off credit cards, you can significantly raise your credit score. This means your credit utilization goes down a lot, which makes credit bureaus smile.
- If you take out a new 30-year mortgage, you are restarting the mortgage clock. This may not be a wise move if you have been paying on your home loan for 15 or 20 years. Consider refinancing into a shorter-term, lower-rate 15-year mortgage, instead.
Final Thoughts on New Jersey Cash-Out Refinance Rules & Guidelines
Home prices in New Jersey have been rising and interest rates are crashing to record lows. But home values could drop soon in the state as the COVID-19 pandemic reduces buying and selling activity. If you have been mulling a cash-out refinance, consider submitting your application today.
New Jersey Cash-Out Refinance News
- Coronavirus Complicates Home Buying and Mortgage Refinancing: While interest rates on mortgages are at record lows in New Jersey, COVID-19 has snarled the refinance process as thousands of applications are backlogged and title searches and deed filings are happening much more slowly. (NYTimes.com)
- Mortgage Rates Are At a 3-Year Low – Is Now a Good Time To Refinance Your Home?: Refinancing your home with cash out is a big deal in New Jersey. After years of rising rates, the COVID-19 pandemic has led to a plunge in mortgage rates below 4%. Now could be a great time to get the low rate and cash you need. (NJ.com).
- Home Prices in New Jersey Head for 12% Drop: Home sales in New Jersey are expected to drop as much as 45% in 2020 from last year, and prices could plunge by 12%, so if you have been on the fence about refinancing, do it now before it is too late. (Crainsnewyork.com)