Utah Cash-Out Refinance Rules & Guidelines

You know that the COVID-19 pandemic has led to upheaval in the mortgage market if you have watched the news. Rates have been dropping to close to 3%. Meanwhile, home prices in Utah have been rising by a healthy 5% in the last year. Even with all the bad economic news, a silver lining is that many in Utah could benefit from refinancing their mortgage, leading to a lower payment, and even pulling out cash to remodel their home.

Utah Cash-Out Refinance Overview

The average home price in Utah is $355,000, and many in the state have owned their homes for more than 10 years. This means they usually have plenty of equity to use if they want to pull out cash for home improvements or other important.

With COVID-19 hammering the country, this might be the perfect time to score a low-interest mortgage in Utah and get the cash you need to improve your home. When you sell your home someday, a major home renovation can add thousands of dollars to your selling price.

What exactly is a cash-out refinance? According to Investopedia, a cash-out refinance pays off your current mortgage with a new one with a higher balance. It should have a lower rate than what you had before – many experts recommend refinancing if you can save between .5% and 1% on your mortgage rate. The higher mortgage balance is from the equity that you borrow from the property.

For instance, if you have a Utah home with a $300,000 mortgage and you owe $150,000, you have $150,000 in equity…unless the value has dropped during the COVID-19 pandemic. But most housing experts in Utah do not anticipate significant home price drops in the short term.

Let’s say you have been dreaming of adding an extension to your family room and upgrade your kitchen, and it takes $100,000 to do both jobs. Take out $100,000 in equity and refinance your mortgage for $250,000 with a lower rate.

How much can you save? Assume you had a 4.5% rate and have a 3.5% rate on your new loan. You would save about $120 per month on your new 30-year loan.

Rules & Guidelines on Utah Cash-Out Refinance

Doing a cash-out refinance in an economic downturn can be a smart move because rates often drop. But you need to qualify, and many mortgage lenders have been tightening the screws on credit for consumers. Over the last month, lenders have added higher credit score requirements for new purchases and refinances.

For example, JPMorgan & Chase now requires a 700 credit score to get a mortgage or refinance an existing one. Wells Fargo requires a 680 credit score for government loans (FHA, for example) that it buys from smaller lenders.

Also, Investopedia says in this market, you should have a debt-to-income ratio (DTI) of no more than 43% of your income, but many lenders want to see 36% now. This means your total monthly debt payments should not exceed 43% or 36% of your gross monthly income.

Most Utah lenders will not let you take out more than 80% of your home’s value. You will still have some equity in the home if prices drop during the economic downturn.

Considerations with a Utah Cash-Out Refinance

Do you want to get a lower rate today and pull out equity? Before you call the lender, consider the following points:

  • Closing costs in Utah average $1,891. Your best option here is to pay those at closing. But you can reduce your out-of-pocket costs on your Utah cash-out refinance by rolling the closing costs into the loan. Note that you should figure out how long you will stay in the home before you refinance. If you plan to move in a year, you would cover your closing costs with the money you save in interest.
  • Your home backs your loan. If you cannot pay your higher mortgage payment, you will lose your home. Consider for certain if you will be comfortable with your mortgage payment years down the road.
  • If your interest rate is 3.5%, you may be better off keeping your first mortgage and getting a home equity loan. You can still tap your equity, with a slightly higher fixed rate than a first mortgage.
  • Most people refinance with another 30-year mortgage. But they are starting all over on their payments. This is not the best choice if you have been paying for 10 or 20 years. Consider getting a 15-year loan if you can shoulder the higher payments.

Final Thoughts on Utah Cash-Out Refinance Rules & Guidelines

Doing a cash-out refinance on your Utah home can be a great idea in the current low-interest-rate environment. Pulling out cash and rehabbing your home can be smart because it adds to the home’s value when you sell.

But be aware that qualification criteria during COVID-19 have been raised, so check your credit score and see what you can qualify for. If your credit and DTI and income are good, you may want to get that cash-out refinance ASAP before rates go up!

Utah Cash-Out Mortgage News

  • Home Values Rising in Utah Amid Coronavirus Crisis: Even with COVID-19 ravaging the US economy, home prices have continued to rise in Utah at a rate of 1.7%. With low-interest rates and rising home prices, refinancing for cash-out could make sense for many homeowners in Utah. (Moneywise.com)
  • Utah Housing Market Is Good For Homeowners Despite Pandemic: The housing market nationally is full of uncertainty, but the housing market is still good for homeowners and homebuyers in Utah. If you own a home here, home prices have not dropped and mortgage rates are low, so pulling out equity could be the way to go. (KSLTV.com)
  • Home Prices Are Climbing in Utah As Number of Sales Crash: The number of home sales dropped 10% in March 2020 in Utah but home prices increased 8%. Also, the inventory of homes could drop 30-40% in the next few months, which could lead to even home prices for homeowners. (KSLnewsradio.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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