New York Cash Out Refinance Rules & Guidelines

The Federal Reserve pledged in March 2020 to buy unlimited quantities of Treasuries and mortgage bonds to prop up markets after the coronavirus caused large portions of the US economy to shut down.

While these are uncertain times for many, one of the silver linings is mortgage rates continue to hit new lows. Some experts think a 30-year fixed rate of 2.75% is possible.

With rates so low, now is an excellent time to consider a cash-out refinance in New York. Below is critical information to know about getting a cash-out refinance loan in The Empire State.

New York Cash-Out Refinance Overview

A cash-out refinance in New York is where you replace your current mortgage with a new home loan for more than what you owe on the property. You take the difference in cash which you can spend on remodeling your kitchen, consolidating debts, and other financial needs. You need to have equity built in your residence to do a cash-out refinance.

Here’s how a cash-out refinance works. Say you have a home in Buffalo, New York, that is worth $300,000. You owe $120,000 on the mortgage. If you qualify, you might be able to do a cash-out refinance where you take out $50,000 in equity. The new loan will be for $170,000. With interest rates so low, you probably can get a lower rate as well that could keep your payment from increasing much at all.

The above example assumes a loan-to-value (LTV) of 80% that keeps 20% equity in the home.

Rules & Guidelines on New York Cash-Out Refinance

Like most states, New York lets you pull equity from your house one time per year. But you have to keep 20% equity in the home. Why? In the last financial downturn, some mortgage lenders allowed homeowners to pull out 100% or even 105% of their equity. When home values plummeted, millions of people owed more on their homes than they were worth, could no longer pay the loans and defaulted.

Today, New York rules and guidelines prevent borrowers from overextending themselves. Thus you can only borrow up to 80% on your home in most cases.

For instance, say you have a home in New York that is worth $200,000. You owe $100,000 on the loan. LTV is 50%. Most lenders in New York will allow you to borrow 80% of $200,000, which is $160,000. If you can qualify for the new loan, you could take out up to $60,000.

But there are exceptions. If you are a former military member and have a VA loan, you may be allowed to borrow up to 95% of LTV. If you have a loan from FHA, you might borrow up to 85%. You should check with your New York mortgage lender to see if you can borrow more than 80% with a VA or FHA loan.

Another rule to be aware of in New York is that you can now get a new mortgage without paying the New York State mortgage tax on the full amount. With a Consolidation, Extension, and Modification (CEMA) agreement, you only need to pay taxes on the amount of your new loan that is above your current principal balance.

Talk to your lender for more information on how you can save on taxes with a CEMA agreement in New York.

Can You Reduce Your Payment With a Cash-Out New York Refinance?

It depends. If your current first mortgage rate is higher than rates in March 2020, you might be able to get a lower rate while you pull out equity. Many financial experts have said in the past that you need to save 2% on your rate to make refinancing worth it.

But times have changed as mortgages have gotten larger. These days, many lenders say that if you can save 1% on your mortgage rate, it makes sense to refinance the mortgage.

Getting a lower rate with your New York cash-out refinance helps you to save money, and it allows you to grow equity faster. For example, if you have a 30-year mortgage at 5.5% on your $100,000 home, your payment is about $570. With a refinance at 4.1%, you are paying only $480.

Other Things to Consider With a New York Cash-Out Refinance

Many people pull cash out of their homes to pay for their children’s college expenses. This is often a smart move. But you should know that if your child is taking out a college loan with the FAFSA (Free Application for Federal Student Aid), the amount of equity you receive with your refi will be added to your Expected Family Contribution.

So, that extra cash could result in your child getting less financial aid.

Final Thoughts on a New York Cash-Out Refinance Rules & Guidelines

Getting a cash-out refinance for your New York home can be a good move if you can save on your interest rate and pull out thousands in cash. It is important to have a good use for the cash, such as remodeling your home. If you do it wisely, you may add thousands in value to the home that you can put in your pocket when you sell it.


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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