Wisconsin Cash-Out Refinance Rules & Guidelines

Have you been considering pulling cash out of your home with a cash-out refinance in Wisconson? You could be in luck: Zillow.com reports home prices are up 5.2% from a year ago in the state. Plus, current mortgage interest rates in mid-April 2020 are about 3.3%. A combination of rising prices and low-interest rates make a Wisconsin cash-out refinance appealing.

But the good news may not last long. The COVID-19 pandemic has introduced uncertainty into the real estate market. How long will home prices continue to rise? The smart thing to do is to do your cash-out refinance as soon as possible so you can get a lower interest rate and the cash you need.

Wisconsin Cash-Out Refinance Overview

When you buy your home in Madison, Green Bay, or elsewhere in Wisconsin, you are making one of the most significant investments of your life. Most people take pride in their homes and want to do what they can to improve it and build its value over time. If you want to add an extension to your living space, where are you going to get that type of cash?

With today’s home prices and rock-bottom interest-rates, many in Wisconsin are pulling the equity out of their homes with a cash-out refi. You can probably get a lower interest rate and thousands in cash to rehab your home. A home renovation, such as adding a room gives you more square footage to enjoy with your family. And it will increase your home’s value when you sell.

For example, Homeguide reports that adding a 20×20 living room extension to your home costs about $50,000. If you owe $250,000 on your home and have a $400,000 mortgage, you might refinance for $300,000 and take the $50,000 in cash to build your new room.

Rules & Guidelines on Wisconsin Cash-Out Refinance

Your Wisconsin home lender will require you to submit an application and show you can afford the higher mortgage payments on your new loan. Most home lenders require at least a 640 credit score, but you should have a score of over 700 for the best rates.

Debt-to-income (DTI) ratios also matter. Many lenders want to see a back-end ratio of no higher than 36%, which is a comparison of all of your monthly debt payments to your gross monthly income.

Also, you must have a minimum of 20% equity in your home to do a cash-out refi. You also cannot borrow more than 80% of your home’s current appraised value in Wisconsin.

Here’s an example: Say your Madison home is worth $250,000 and you owe $150,000. You have $100,000 in home equity or 40% of its value. You cannot borrow all of that equity. Laws and regulations state that you have to retain 20% equity after you refinance. You have $50,000 available to borrow.

So, you would take out a new loan for $200,000 and receive a $50,000 check at the closing table. You also need to pay closing costs, which are 3-5% of the borrowed amount.

Considerations With a Wisconson Cash-Out Refinance

Now is a great time to refinance with low rates and rising home values. But it’s always smart to consider all sides of a refi before you submit your application:

  • You need to pay closing costs. The average closing costs in Wisconsin are $2,688 with an average home value between $100,000 and $200,000. Those costs can be rolled into the loan, or you can pay a slightly higher interest rate.  If you save $100 per month on your new mortgage, it would take about 27 months for you to break even. So you should plan to stay in your home at least that long for your refinance to financially worthwhile.
  • Interest rates will vary. Current rates are 3.3%, but that is for people with the best credit scores. Your rate could be higher.
  • You need a new appraisal. Any new mortgage requires a new appraisal to check the current value of the property. Your appraisal will cost $300 or $400 on average. Note that prices could be volatile during the pandemic, but the only way to know for sure what your home is worth is to do an appraisal.
  • Adding square footage to your home is one of the best ways to increase your home’s value. HGTV.com reports the average family room addition costs $54,000 and adds a whopping $45,400 to the price of the home when you sell. That’s a recoup rate of 83%. Doing this top of remodeling can really pay off in the long run and is a great use of your equity.

Final Thoughts on Wisconsin Cash-Out Refinance Rules & Guidelines

Home prices are rising in the state and interest rates are low. The coronavirus has created uncertainty in the real estate market. So you may be best off by doing your cash-out refinance as soon as you can before home values drops or rates rise.

Wisconsin Cash-Out Mortgage News

  • Millennials Notch Highest Refinance Share in Four Years: Low-interest rates in 2019 and 2020 have spurred a refinance rush across all age groups. But it is particularly common with millennials in the late 20s and early 30s. Some of the hottest mortgage refinance states for these young homeowners were Wisconsin, Kansas, and New York. (Themortgagereports.com)
  • Home Prices Have Been Rising in Wisconsin, Making a Cash-Out Refinance A Good Option: Home values have been on the rise throughout Wisconsin, with an increase of 5.66% from a year ago. Such healthy increases in home values and rock-bottom interest rates mean a cash-out refinance could be a good idea. (Moneywise.com)
  • Home Prices in Wisconsin Rise Into Record Territory Amid Tight Supply and Growing Demand: As of the end of 2019 and early 2020, home prices in Brown County, Wisconsin, were rising at a hot 9% annual rate. Increases may have cooled since the COVID-19 pandemic hit, but many homeowners are still taking advantage of their homes’ value by doing a cash-out refinance. (Greenbaypressgazette.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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