Washington State Cash-Out Refinance Rules & Guidelines

Is now a good time to do a cash-out refinance in Washington state? As home values continue to rise across most of Washington at a rate of about 4.3% per year, homeowners have more equity than ever.

 Many people in the state are deciding to take advantage of the low mortgage rates during the COVID-19 pandemic to save on their monthly mortgage bills.

If your home is rising in value in Washington state, now could be a great time to refinance while mortgage rates are so low. As of April 2020, you can get a fixed-rate, 30-year mortgage for about 3.5%. You can grab a lower rate and pull out the cash you need with a cash-out refinance.

Washington State Cash-Out Refinance Overview

When you have a beautiful home in Washington, it is a big investment, probably the biggest of your life. It is natural to want to take care of that investment by repairing and improving the home over time. But if you want to upgrade that kitchen with all new appliances, cabinets, tile floors, and granite counters, it can add up to $20,000 or more. Where will you find the cash?

Many Americans in these times of low-interest rates turn to a cash-out refinance to score a lower interest rate AND get the cash they need to enhance the value and appeal of their home.

If you need $20,000 to transform your kitchen into a contemporary beauty, you can borrow that money when you refinance your mortgage. If you owe $150,000 on your $300,000 mortgage, you could refinance the loan for $170,000 – assuming you have the equity in the property – and use the $20,000 to remake your kitchen.

Rules & Guidelines on Washington Cash-Out Refinance

Keep in mind that you will need to qualify for a new and higher mortgage, so your credit score and debt to income ratios will need to be in line with your mortgage provider’s requirements. You can expect to need at least a 620 credit score to refinance your Washington home, but the best rates are for people with at least a 700 FICO score. Most lenders in Washington also will want to see a debt-to-income ratio of less than 50%. Your DTI ratio is your monthly debts and payments divided by your total monthly income. So, if you pay $1,500 in bills each month, including your home loan, and your income each month is $4,000, your DTI is 37.5%.

You also will need to have at least 20% equity in your home to refinance. Like most states, Washington allows you to borrow up to 80% of your home’s value. So, you cannot take out 100% of your home’s value, which was common in the early 2000s and led to the financial meltdown of 2008.

Considerations With a Washington State Cash-Out Refinance

Before you decide to refinance on your Washington home, here are some points to consider:

  • You might think that if you paid $40,000 of mortgage principal you can take out $40,000 with your cash-out refinance. This is usually not true. Conventional loans usually require you to leave 20% in your home. FHA loans require 15%-20%.
  • Closing costs: You have to pay closing costs on your new loan. You will need to pay for credit report fees, appraisal fees, and attorney fees. Washington state homeowners typically pay about 1-3% of the mortgage amount in closing costs.
  • You don’t get your money right away. You must submit an application and documentation to get a refinance approved. You also must wait three days after closing to get your money due to requirements in the Truth in Lending Act.
  • Loan terms may be different: You are paying off your old mortgage with a new one at a higher amount. Your new home loan may take longer to pay off and your rate may be different.
  • You need a new appraisal: The lender needs to know the current value of the home to determine if you are eligible to pull out equity. Expect to pay $400 or $500 for a new appraisal.
  • Many experts recommend refinancing if you can save at least 1% on your current interest rate.

Final Thoughts on Washington State Cash-Out Refinance Rules & Guidelines

The best time to refinance is when you want to improve your mortgage with a lower interest rate, and pull out cash for home improvements. Perform a break-even analysis to determine if refinancing is worth doing. This means checking if you will live in the home long enough to benefit from the savings of a lower interest rate. Also, make sure you have enough equity in the home that you can even qualify for a cash-out refinance.

And make sure that you have solid plans for that hard-earned equity – invest the money into your home that will increase its value, such as an upgraded kitchen or family room expansion.

Washington State Cash-Out Mortgage News

  • Coronavirus Shows Signs of Slowing Spring Home Buying, Especially in New York, California, and Washington State: The coronavirus seems to be slowing the spring homebuying season in Washington state and elsewhere. Mortgage applications dropped almost 30% last week compared to a week earlier. Applications to refinance also dropped 34% from the week before, as interest rates rose. (USAToday.com)
  • These Cities Are Mortgage Refinance Hot Spots: Refinance applications in Seattle are soaring 371% this year. The median home value here is $756,000 and typical monthly savings on a refinance is $453 per month. (Finance.Yahoo.com)
  • Record Low Mortgage Rates Spark Flurry of Refinancings in Spokane: Spokane-area homeowners have been flocking to lenders to refinance and pull out cash as mortgage rates have been at record lows. As of the end of March, the average rate for a 30-year fixed-rate mortgage was 3.29%. (Spokesman.com)

References

Refinance Mortgage Requirements. Accessed at

https://www.rocketmortgage.com/learn/refinance-mortgage-requirements

Cash-Out Refinance. Accessed at

https://www.rocketmortgage.com/learn/cash-out-refinance

Is a Mortgage Refinance Right for You? Accessed at

https://www.daveramsey.com/blog/is-a-mortgage-refinance-right-for-you

Coronavirus Sparks Dip in Applications to Buy Homes and Refinance. Accessed at

https://www.usatoday.com/story/money/2020/03/27/coronavirus-sparks-dip-applications-buy-homes-and-refinance/2924591001/

Here’s Where Americans Are Really Saving. Accessed at

https://finance.yahoo.com/news/heres-where-americans-really-saving-144414085.html

Record Low Mortgage Rates Spark a Flurry of Refinancing. Accessed at

https://www.spokesman.com/stories/2020/mar/05/record-low-mortgage-rates-spark-a-flurry-of-refina/

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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