New Mexico Cash Out Refinance Rules & Guidelines

Interested in taking advantage of rising New Mexico home values and doing a cash-out refinance? Zillow reports homes increased in value by a healthy 5.8% average in the past year, with a median home value of $210,000.

While we may see some home values decline temporarily with the COVID-19 pandemic, most housing finance experts are not expecting significant losses that occurred in the last recession.

Plus, mortgage rates for 30-year, fixed-rate loans are just 3.3% as of mid-April 2020. This could be the best time ever to refinance your New Mexico mortgage and pull out equity to renovate your home!

New Mexico Cash-Out Refinance Overview

When you bought your home in Albuquerque or Santa Fe, you made one of the most significant financial investments in your life. Most homeowners take pride in their homes and want to add value and beauty to the property over time. But say you want to add a gorgeous family room extension to the back of the home? Where are you going to get the money?

Pulling equity out of your home with a cash-out refinance can be a smart move. If you have an interest rate in the 4’s, you may drop as much as 1% off your payment and get tens of thousands of equity to remodel your home. Adding square footage is a good way to add value to the property when you sell.

Homeguide.com reports that it costs about $48,000 to add a 20×20 family room extension to your home. If you owe $200,000 on your mortgage and have a $350,000 mortgage, you could refinance for $250,000 and take out the $50,000 in cash.

Rules & Guidelines on New Mexico Cash-Out Refinance

Your lender in New Mexico will ask you to turn in an application and show you can pay the higher mortgage payments as you are borrowing more money. You should expect to need a 640 to 680 credit score to qualify, and a 740 score is best for the lowest rates.

Your debt-to-income ratio also matters. Most home mortgage lenders like to see a back-end DTI of 36% or lower. This ratio compares your monthly debt payments to your gross monthly earnings.

It is required to have at least 20% equity in the property to do the refi. It also is a requirement in New Mexico to not borrow more than 80% of the home’s appraised value.

Let’s look at a simple example. Say your Albuequerqe home is worth $250,000 and you owe $150,000. There is $100,000 in equity; this is 40% of the property’s value. You cannot borrow 100% of your equity. Laws state you have to keep 20% equity in the home. So you have $50,000 at your disposal.

If you qualify for the new loan, you can get a mortgage for $200,000 and get a $50,000 check when you close.

Considerations With a New Mexico Cash-Out Refinance

Home values are rising and interest rates are low, so let’s do that cash-out refinance, right? Probably, but consider these factors before you make a final decision:

  • You need to factor closing costs into your refinance decision. The average closing costs in New Mexico are $2909. If you refinance a home between $200,000 and $300,000, you will pay between $1,939 and $4,363. You can roll that expense into the mortgage. But if you plan to sell the home in a year or two, you could pay more in closing costs than you are saving in interest. So plan on staying in your home for at least three or four years minimum.
  • You have to pay for a new appraisal. The lender needs to make sure the home is worth what they are lending you, so you are required to pay for a new appraisal. That’s $300 to $500 out of your pocket.
  • Good news – if you want to add a family room, you are going to get a lot of bang for your buck! HGTV.com reports the average family room extension costs $54,000. But it adds up to $45,000 in value when you sell your home! That’s a heck of a return worth considering.

Final Thoughts on a New Mexico Cash-Out Refinance Rules and Guidelines

Interest rates are in the low 3’s and home values are holding steady for now in New Mexico. What is going to happen in the real estate market in the short term is uncertain with the COVID-19 upheaval. If you are on the fence on refinancing, it may be wise to go ahead and get it done. Get that lower rate and cash in end before the housing market shifts.

New Mexico Cash-Out Mortgage News

  • Housing Market in New Mexico and Other States May Be Poised to Weather Coronavirus Impact: While there is some concern about declines in the housing market in New Mexico and other states, some financial experts say we should next expect a repeat of the last housing crash, arguing the housing market is not overvalued, the housing market is underbuilt, and equity is at historic highs, so people can pull out cash. (Hookagency.com)
  • Home Values Rise in New Mexico Thanks to Low Mortgage Rates: Home values in New Mexico are up a healthy 4.1% from a year ago. The median home value is $196,000, and there are thousands of New Mexicans who may be able to tap equity with a cash-out refinance. (Moneywise.com)
  • Coronavirus Won’t Lead to Another Great Recession for Housing: New Mexicans can breathe a sigh of relief that while the coronavirus could lead to some loss of property value in the short term, we are unlikely to see major losses as in the Great Recession. Most New Mexico homeowners are not overleveraged and have equity in their homes so they can weather a downturn for a year or two. (NationalMortgageNews.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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