How to Raise Your Credit Score for a Cash-Out Refinance

Lenders have tightened lending standards for new and refinanced mortgages during the COVID-19 pandemic. If you are considering a cash-out refinance, you may need to raise your credit score to be approved.

Below are some effective ways to boost your credit score before you apply for a cash-out refinance. It is smart to start working on boosting your FICO score at least six months before you apply.

#1 Pay All Bills on Time

Did you know that 35% of your credit score is derived from your payment history? It is the most important factor to build an outstanding credit score. The most effective way to boost yours is to have a strong history of on-time payments for at least two years before you refinance.

Take a look at all of your bank, loan, and credit card statements and determine how much you owe every month on all accounts. Write down the minimum payment for each account and due date in a spreadsheet. Remind yourself to make on-time payments for every account each month by putting the spreadsheet on your computer desktop or on a desk calendar.

Also, consider setting up automatic bill pay if your accounts let you do it. Automatic bill pay lets you schedule a date for a minimum payment in advance. After you set it up, your account holder will deduct what you owe automatically each month. This will help you avoid lowering your score by accident by forgetting to make a payment.

#2 Keep Credit Utilization Low

Credit utilization is how much of your total available credit you are using. If you have a credit card with a $10,000 limit and you have $5,000 of expenses on it, you have a credit utilization of 50%. If you are using 100% of your available credit, it will put a significant dent in your credit score.

Lenders are less likely to approve a cash-out refinance for a borrower with a high credit utilization rate. It probably means you do not have a lot of money in savings, which makes you a higher risk.

Keep your utilization ratio low every month by paying your balances in full or as much as you can. Your utilization ratio comprises 30% of your FICO score.

Your credit score will usually increase if you keep your utilization ratio below 30%. For the biggest increase in your score, keep the utilization ratio under 10%. Carrying more cash, paying off charges right away, and carefully budgeting your money are ways to lower your credit utilization ratio.

#3 Get a Secured Credit Card

If your credit is poor, you might not qualify for a cash-out refinance or even a regular credit card. A secured card allows you to build credit when you need it. Here’s how it works: You leave a deposit with the lender when you get a secured credit card. The deposit is your line of credit. For instance, a lender may require a $500 deposit to open a $500 secured credit card. Your lender holds that deposit until you close the card.

Once you make the deposit, the card works just like a regular credit card. You buy items on the card and pay them off with interest every month. Your lender reports your on-time payments to the credit bureaus. This builds your credit score. If you do not make on-time payments, the lender keeps your deposit.

Secured credit cards are a wonderful way to boost your credit. But remember – you need to make every payment on time.

#4 Do Not Apply for New Credit Often

When you apply for a new credit line, it is recorded on your credit report as a hard inquiry whether you are approved or not. The more credit inquiries on your report, the lower your score.

It is best to wait to apply for new credit after your mortgage refinance is closed. The lender will check your credit just before closing, so do not apply for new credit after the mortgage has been approved.

However, if you are car shopping, it is ok to apply for car loans usually; all of the car loan credit applications will show as one inquiry on your report.

#5 Have a Mix of Credit Accounts

The type of credit you use affects your score. If you have a car loan, mortgage, student loan, and a credit card and all are paid on time for years, this shows lenders you can handle having different types of credit.

Options for Refinancing With Bad Credit

It is important to do everything you can to raise your credit score to get the best interest rates for a cash-out refinance. But if your credit still isn’t great, below are some options to consider:

  • Apply with a cosigner: You can qualify for some cash-out refinance loans if you apply with a non-occupying co-client. This is a person who does not live in the home but will take financial responsibility for the loan if you do not pay. In this situation, the lender will look at both credit scores, income, and assets when they make their lending decision. Depending on the loan type, your cosigner may need to be on the title of the property.
  • FHA streamline refinance: If you are refinancing an FHA loan, you can get approved without income and credit verification. You might even be able to get an FHA streamline refinance without an appraisal. However, this option only allows you to refinance to change the rate or term; you cannot refinance and get cash without a credit check.

Final Thoughts On How to Raise Your Credit Score for a Cash-Out Refinance

Qualifying for a cash-out refinance in the era of COVID-19 is more difficult. But if you follow the above tips to boost your credit score, you stand a good chance of being approved by many lenders.

References

Missouri Cash-Out Refinance Rules & Guidelines

Zillow.com states the median home price in Missouri is $165,000, and prices rise approximately 3.9% per year. While the home purchase market is slowing overall in Missouri, many homeowners are eying low-interest rates and thinking about refinancing and pulling out cash while they still can.

During March and parts of April, a 30-year, fixed-rate mortgage could be had at 3.29%. It is almost unheard of to see such low rates. Now could be the perfect time to refinance the mortgage on your Missouri home and pull out cash for renovations?

Interested? Keep reading to learn more about a cash-out refi in Missouri.

Missouri Cash-Out Refinance Overview

If you buy a home in Missouri, you may pay between $150,000 and $250,000. It’s a lot of money! That is why Missouri homeowners like to keep up their homes and upgrade them when possible. But renovating a kitchen or adding a family room extension can be $30,000 or more. What is the best way to get money?

With the COVID-19 pandemic hitting the US economy hard, you could have a great chance to access the cash you need and lower your rate with a cash-out refinance.

A cash-out refinance allows you to pay off your first home loan with a new one at a lower rate, but with a higher balance. You are pulling out some of your hard-earned equity for home improvements, so you have a bigger mortgage. But with a lower rate, you might not see much of a payment change.

For example, if you have a $200,000 mortgage and owe $100,000 on it, you have about $100,000 of equity. If you want to remodel your kitchen with new cabinets, granite counters, modern appliances, and concrete floor, you could pull out $30,000 in equity and have a new mortgage of $130,000 with a lower interest rate.

If you have a current rate of 4.5% and lower it to 3.5%, you still could save a few bucks per month in payment with a higher balance. It’s a good deal, if you qualify.

Rules & Guidelines on Missouri Cash-Out Refinance

The COVID-19 pandemic has caused lenders to tighten their lending standards, so you have to have better credit scores and debt to income ratios (DTI) to qualify for a cash-out refinance. Lenders also are checking out your income more carefully and might even verify you still are employed up to the day of closing.

Regarding credit, you will need a 680 FICO score to do a cash-out refinance if your loan is backed by Fannie Mae or Freddie Mac. Also, you should have a debt to income ratio of 36%. This means your total debt payments each month cannot be more than 36% of your gross monthly income. If you are refinancing with an FHA-backed lender, you may be able to have a higher DTI of up to 50%.

Also, you must have 20% equity in your Missouri home to qualify for a cash-out refinance. Laws also prohibit a loan-to-value of more than 80%. So you will have some equity left in the home, just in case prices decline so you do not owe more than the home is worth.

Considerations with a Missouri Cash-Out Refinance

The COVID-19 pandemic is a major economic problem in the US, but it has created an opportunity for some Missouri homeowners to drop their interest rates and access their equity. Before you do so, please consider the following points:

  • The average cost of closing a home loan in Missouri is $1,856. You can wrap those costs into the new loan, but it will increase the balance and you will pay interest on closing costs for the duration of the loan. Consider how long you plan to live in the house before you refinance; if you save $100 per month on your mortgage refi, you have to live in the house about 18 months to break even. Moving sooner? You might reconsider refinancing.
  • How much is your interest rate on your mortgage today? If you have a rate under 4%, you may want to rethink a refinance. You might be better suited to a home equity loan or home equity line of credit. Access your equity without affecting your first mortgage, and still get a low rate.
  • Increasing your mortgage balance has risks. You owe more to the lender and if your job goes south, you could lose your home.
  • If you have paid on your mortgage for years, you may not want another 30-year loan. Why start over on your payments? A 15-year loan has a 30-40% higher payment, but you will pay less interest and pay off your home much faster.

Final Thoughts on Missouri Cash-Out Refinance Rules & Guidelines

Interest rates are low and home prices in Missouri have been increasing. This could be the best time for a cash-out refinance! Rates will definitely not stay this low forever, so check your credit score and talk to your lender today about a cash-out refi.

Missouri Cash-Out Mortgage News

  • Refinances in Missouri Surge in Record Rate Environment: Mortgage rates across the nation hit a record low of 3.29% in March, and financial institutions are working hard in Missouri to keep up with all the refinance applications. Banks and credit unions in the state have seen a strong uptick for refinancing mortgages, with some Missourians pulling out cash. (SBJ.net).
  • It’s a Feeding Frenzy – COVID-19 Not Slowing Down St. Louis Housing Market – Yet: Selling a home during COVID-19 takes creativity, masks and gloves, but the housing market has not been hit in St. Louis yet. The average selling price in the area is $329,000, and people are taking advantage of low-interest rates to buy homes or refinance their current mortgages. (KMOV.com)
  • Missouri Home Sales Overall Are Down: Missouri’s overall housing market has taken a hit from COVID-19, with home sales down 20% from March, and new home sales down 12%. But current homeowners are scurrying to refinance their mortgages and pull out cash before interest rates rise. (KY3.com)

Delaware Cash-Out Refinance Rules & Guidelines

Have you been watching the news about COVID-19 and also been watching mortgage rates? Then you know we are seeing some of the lowest rates for 30-year mortgages ever. Rates have fallen as low as the low 3’s since March 2020.

Also, home prices in Delaware have been rising in recent years, so this could be the perfect time to refinance your mortgage and pull cash out. Below is more information about a cash-out refinance in Delaware.

Delaware Cash-Out Refinance Overview

Zillow.com reports the median home price in Delaware is $257,000, and many homeowners have owned their properties for more than 10 years. This means they usually have a lot of equity they can tap for home improvements. Doing a cash-out refinance to improve your home can be a great move because it increases the price of your home whenever you sell it.

With COVID-19 affecting the US economy and mortgage rates, this is an ideal time to save on your mortgage and pull out cash.

A cash-out refinance means replacing your current mortgage with a new one with a higher balance and (usually) a lower rate. A refinance could be a good move for you on your Delaware home if you can save between .5% and 1% on your loan. The higher loan balance is because you are pulling out some equity.

For example, if you own a Delaware home with a $250,000 mortgage and you owe $100,000, you may have $150,000 in equity in the home. If you want to remodel your kitchen and master bathroom, you might want to pull out $30,000 with a refinance. So you would have a new mortgage of $130,000 but a lower interest rate.

If you have a 4.5% rate now and can refinance to 3.5%, you could save $50 to $100 per month with the higher loan balance. That’s a good deal.

Rules & Guidelines on Delaware Cash-Out Refinance

Doing your cash-out refinance in this economic downturn can be a smooth move because rates have dropped with investors fleeing to bonds, which typically lowers mortgage rates. But you need to qualify for a loan, and mortgage lenders in Delaware and other states have been making it harder to qualify for a mortgage.

For instance, JPMorgan & Chase requires you to have a 700 credit score to get a mortgage. Wells Fargo’s new rules say you need a 680 to get an FHA loan.

Investipedia.com states you should have a DTI (debt to income ratio) of no more than 43% of your income. This means your total debt payments per month should not exceed 43% of your gross monthly income.

Further, most lenders in Delaware prohibit you from taking out more than 80% of your home’s value. You will need to leave some of the equity in the property when you refinance.

Considerations with a Delaware Cash-Out Refinance

Are you interested in pulling cash out of your Delaware home and saving on your monthly payment? A cash-out refinance could be the perfect move, but consider these points first:

  • Closing costs in Delaware are high. You can expect to pay closing costs of up to $8,000 for refinancing a mortgage of $200,000 or $300,000 in this state. You can roll these costs into your loan, but it increases your monthly payment and you are paying interest on your closing costs. Before you refinance, think about how long you will be in your home. You would need to stay in the home for years to recoup your closing costs with your mortgage interest savings.
  • Your loan is guaranteed by your home. If you cannot pay the higher mortgage, you will lose the property. So be sure your job is secure and your salary is stable.
  • If you have an interest rate under 4%, you may want to keep your first mortgage and get a home equity instead. Your rate will be higher with a second mortgage, but you still can pull out cash and pay less than you would for a personal loan.
  • Most Delaware homeowners refinance with a 30-year loan. But this means they are starting over on their payments. If you are getting close to retirement, do you want to be paying a mortgage when you aren’t working? If not, consider a 15-year loan instead.

Final Thoughts on Delaware Cash-Out Refinance Rules & Guidelines

With the low rates during the COVID-19 pandemic, refinancing and pulling out cash can be a fantastic choice. You can rehab your home and add to its value, and pay less interest.

But know that it is harder to get a mortgage right now, so pull a credit report and see where your credit is. If your FICO score and debt to income are good, you may want to refinance before mortgage rates inevitably rise.

Delaware Cash-Out Mortgage News

  • This is What a Delaware Cash-Out Refinance Could Save You: The COVID-19 pandemic has caused mortgage rates to drop to the lowest in history. Mortgage rates are down one point from a year ago. The average savings are $60 for every $100,000 you borrow. If you bought a $250,000 home in Delaware with a 4.58% rate and a $50,000 down payment you would pay about $1022. With a refinance at 3.87% in Delaware, you could save at least $80 per month, and possibly pull out cash. (Moneywise.com)
  • Home Prices Are Warming Up in Delaware: Because of low mortgage rates, it is a great time to buy or sell a home in Delaware. It also is a fine time to refinance your mortgage and pull out cash. Home values in the state are rising at 1% per year. (Moneywise.com)
  • Delaware Home Prices Grew Faster in 2018 Than Any State But Oregon: The average price of a home in Delaware increased by 3.9% during the first three months of 2018. Now that COVID-19 has hit the US, prices in Delaware have not yet dropped significantly and interest rates are low, so refinancing is a great option. (Delawareonline.com)

Mississippi Cash-Out Refinance Rules & Guidelines

Zillow.com reports the average home price in Mississippi is $127,500, and with record-low mortgage rates, many homeowners in the state are choosing to pull equity out of their homes with a refinance.

Since March, mortgage interest rates for a 30-year loan have fallen to as low as 3.29%. Interest rates rarely fall this low. If you want to drop that monthly payment and pull cash out to remodel your home, think about applying for a Mississippi cash-out refinance as soon as you can. Remember, when the COVID-19 pandemic passes mostly into history, rates will probably rise. This is a unique opportunity.

Mississippi Cash-Out Refinance Overview

When you buy a house in Mississippi, you may pay between $100,000 and $200,000. Businessinsider.com reports the median home listing price in the state is $189,000. Even with relatively low prices in Mississippi, it still is a huge investment to most people. That is why most homeowners want to keep up their property and upgrade it when they can.

But say you look at that old, outdated kitchen and want to do a full remodel. You might have to spend $20,000 or $30,000. That’s a lot of cash. What about a personal loan? That’s a possibility, but the interest rate will be high.

Another good option is a cash-out refinance. A cash-out refi means you pay off your first mortgage with a new one with a higher balance. You refinance your house for what you owe plus the amount of home equity you want to take out. You will have a bigger mortgage balance, but you will have a lower interest rate, AND have cash in your pocket for remodeling.

For instance, if you have a $200,000 home loan and owe $100,000, you have approximately $100,000 in home equity. If you want to take out $25,000 for your kitchen remodel, you can refinance the property for $125,000 and take the excess cash. Also, if you can drop your mortgage rate by a point, you could save $100 or $150 on your monthly payment.

Rules & Guidelines on Mississippi Cash-Out Refinance

Since COVID-19 hit the United States in February, mortgage lenders have tightened their lending standards. Getting a cash-out refi could be even more challenging, but it is possible with a good credit score and steady employment.

You may need at least a 680 credit score to get a cash-out refinance for home loans backed by Freddie Mac or Fannie Mae. Also, it is typical to need a 36% debt to income ratio, or DTI. This means your total monthly debt payments cannot exceed 36% of your gross income. If you are refinancing an FHA loan, you may be able to have a higher DTI, but check with your lender.

Further, you need to have 20% equity in your Mississippi home to do a refinance. Having a loan-to-value above 80% is not allowed and some lenders may only let you have an LTV of 75%. It depends on the lender, but things are getting stricter during this economic downturn.

Considerations with a Mississippi Cash-Out Refinance

The COVID-19 pandemic has been a gut punch to the world economy. But it has created some financial opportunities for homeowners who have an opportunity to lower their rate to an all-time low and get cash with a very low cost. But it is always wise to think about all sides of a cash-out refi before you make the decision:

  • Closing costs in Mississippi average $2,158. Homeowners should think about these costs as they think about refinancing. The best option is to pay your refi closing costs at the closing table. You also can roll them into your loan, but you will pay interest on them as long as you are paying your mortgage. Think about how long you are going to stay in your home. If you move 18 months after you refinance, you will not recoup your closing costs. A cash-out refinance is wisest for the homeowner who intends to live in the property for a few years.
  • What is your current interest rate? Many mortgage experts say you should save at least .5% on your mortgage to refinance it. If you already have a rate in the 3’s, consider doing a home equity loan instead. You can get the cash you want from your home and still have a low-interest rate with this second mortgage.
  • Making your mortgage larger has risk. Can you definitely afford the higher payment? Do not increase your mortgage payment unless you are sure your job is secure and you can afford it.
  • If you have paid for years on your mortgage, refinancing into a 30-year loan may not be a smart move. Think about refinancing into a 15-year loan. Your payment will be higher but the rate will be lower and you will pay off the home faster.

Final Thoughts on Mississippi Cash-Out Refinance Rules & Guidelines

Mortgage rates are at record lows, so this could be the perfect time to do a cash-out refi. Just be sure you have stable employment and you can afford the higher payment. Interest rates will probably rise once the coronavirus is in the rearview mirror, so this is a unique opportunity, don’t miss the boat!

Mississippi Cash-Out Mortgage News

  • Bucking National Trends, Houses and Cars Selling Big in Mississippi: Homes and cars are selling well in Mississippi, which is something you may not expect in the uncertain time of the COVID-19 pandemic. But the coronavirus has had a major lowering effect on interest rates, which is creating demand in real estate. The number of homes for sale has dropped as well. (Magnoliastatelive.com)
  • Home Values Declining in Mississippi Amid Coronavirus Crisis: Home values have declined in Mississippi -0.8% from one year ago. The median value for a home in 2020 in this state is $265,000. Still, mortgage rates are at record lows, so homebuyers have a chance to get a low payment, and homeowners can refinance at a very low rate. (Moneywise.com)
  • Equity-Rich Homeowners See Rosy First Quarter: Homeowners’ balance sheets stayed stable in the first quarter of 2020, including in Mississippi, with homeowners four times as likely to be equity-rich than seriously underwater. With interest rates at record lows, many people are deciding to refinance and pull out cash. (MPAmag.com)

Montana Cash-Out Refinance Rules & Guidelines

According to Zillow.com, home prices in Montana average $288,800, with home prices up 5.2% from one year ago. Homeowners in Montana may be looking closely at the low-interest rates during the COVID-19 pandemic and thinking it could be time to refinance.

They could be right. In the last two months, 30-year mortgage rates have fallen into the low to mid 3’s. It is seldom we see interest rates so low, so if you want to save on your mortgage and pull out equity, consider applying for a Montana cash-out refinance today.

Montana Cash-Out Refinance Overview

If you purchase a home in Montana, you will often pay between $200,000 and $300,000. It’s a huge investment for most people. That is why most Montanans want to maintain their home and upgrade it as they can afford to do so. But if you want to do a big kitchen remodel, you could be looking at a $30,000 bill. How will you pay for it?

Credit cards and personal loans have high-interest rates. Another option is to access the equity in your home with a cash-out refinance. A cash-out refinance involves paying off your first mortgage with a new mortgage with a higher balance. You refinance the home for what you owe, plus the amount of equity you are pulling out. Your mortgage balance is larger, but you probably have a lower interest rate.

For example, if you have a $300,000 home loan and owe $150,000, you should have $150,000 in equity. Say you want to pull out $30,000 in cash to remodel your kitchen. You can refinance the home for $180,000 and take $30,000 in cash. Also, if you can reduce your interest rate by a point, you might save $100 or $200 on your payment, depending on your exact mortgage amount.

Rules & Guidelines on Montana Cash-Out Refinance

Since the coronavirus hit the US in March 2020, getting a home loan has gotten more difficult. Getting a cash-out refinance can be even more challenging, so you will need to make sure you have the credit score and income to satisfy your lender.

Credit standards are higher now. You will need at least a 680 FICO score for a cash-out refi for Fannie Mae and Freddie Mac-backed loans. You also could need a 36% debt to income ratio (DTI). This means your monthly debt payments cannot be more than 36% of your gross income.

Also, you must have at least 20% equity in your Montana to qualify for a cash-out refinance. LTVs above 80% are not allowed, and some lenders may only allow 70% or 75% in the current economic environment.

Considerations with a Montana Cash-Out Refinance

The coronavirus pandemic is a tough time for the world, but it has created an opportunity for some Montana homeowners to pull out cash and get a lower interest rate. But it is a good idea to consider all sides of the refinance before you submit an application:

  • Closing costs average $2700 in Montana. These costs should be considered as you weigh whether or not to do a cash-out refinance. You can pay these at closing which is the best idea financially but also can roll them into your loan. Consider how long you intend to live in the home; if you move a year after you refinance, you will not recoup your closing costs in your interest savings. Refinances are best for people who plan to live in the home at least a few years.
  • Consider what your current rate is. Many experts recommend that you save at least .5% on your rate before you refinance. If you have a low mortgage rate now, you might want to get a home equity loan or home equity line of credit (HELOC).
  •  Taking on a bigger home loan has some risks. Can you afford the higher payment? Don’t take on a bigger payment unless you are sure you can handle it or you could lose your home.
  • Do you want to refinance into another 30-year loan? This starts your payment plan all over. If you have been paying your loan for 20 years, consider refinancing into a shorter-term loan so you can pay your loan off faster.

Final Thoughts on Montana Cash-Out Refinance Rules & Guidelines

Home prices are rising in Montana and interest rates are low, so this could be the best time to refinance with cash out in years. Interest rates will not stay this low for long, so consider making the move today on your cash-out refinance.

Montana Cash-Out Mortgage News

  • Housing Market in Montana Sees Steady Prices and Strong Sales: In Flathead Valley, Montana, real estate has been strong with high demand and low-interest rates. People who have been refinancing their mortgages also have been saving a lot in interest. (Flatheadbeacon.com)
  • Home Prices Hot in Montana Despite the COVID-19 Pandemic: Home values are up a hot 20% from a year ago in Montana. If you have been thinking about doing a cash-out refinance, this could be the best time in years. (Moneywise.com)
  • Montana Interest Rates at All-Time Low of 3.23%: As of April 30, 2020, mortgage rates reported in Montana were at an all-time low of 3.23%. If homeowners can qualify under tighter lending criteria, this could be a good time to do a cash-out refinance or buy a home. (NBCMontana.com)

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)

Nevada Cash-Out Refinance Rules & Guidelines

Home prices in Nevada average $309,000, with a 2.3% increase over last year, according to Zillow.com. Homeowners in the state may be eying the low-interest rates we have been seeing since the COVID-19 pandemic hit the country.

At some points, the rate for a 30-year, fixed-rate mortgage was 3.3%. It is rare to see interest rates that low, so now could be the ideal time to do a cash-out refinance. If you have been dreaming about remodeling your kitchen or adding a bedroom, you could take some equity out of your home and pay a very low-interest rate.

Below is more information about a cash-out refinance in Nevada.

Nevada Cash-Out Refinance Overview

If you buy a home around Las Vegas, you will pay well over $300,000 in most cases. It’s a big investment. That’s why homeowners like to maintain their property and upgrade it when they can afford it. But home renovations cost $20,000 or $30,000. Paying that much in cash is tough!

With the coronavirus pandemic, you might have a special opportunity to access the cash to add that bedroom or upgrade the kitchen. Interest rates are so low, refinancing for cash-out makes sense.

With a cash-out refinance, you are paying off your old mortgage with a new one for one with a higher balance. You are taking out some of your equity for home improvements so your mortgage will be bigger than it was, but it should have a lower interest rate.

Let’s say you have a $300,000 mortgage and you owe $150,000 on it. You have at least $150,000 in equity. If you wanted to take out $50,000 in cash to add a bedroom, you could refinance your home for $200,000. Plus, if you refinance from 4.5% to 3.5%, you could save more than $100 per month on your mortgage payment.

Rules & Guidelines on Nevada Cash-Out Refinance

Since the COVID-19 pandemic, getting a mortgage has become more challenging for some borrowers, including cash-out refinances. Lenders are looking more carefully at income and some banks are verifying your employment up to the day of closing.

Also, credit standards are tighter; a 680 credit score is probably needed for a cash-out refinance for lenders backed by Fannie Mae and Freddie Mac. A debt-to-income ratio of 36% is usually required, meaning your total monthly debt payments cannot exceed 36% of your gross monthly income. However, if you have an FHA loan, you may be able to have a ratio of 43%.

You need to have at least 20% equity in your Nevada home to qualify for any cash-out refinance. Further, you cannot have an LTV higher than 80%; at least 20% of your equity must stay in the home.

Considerations with a Nevada Cash-Out Refinance

There is no doubt that the COVID-19 pandemic has produced a good opportunity for some homeowners to lower their interest rate and pull out cash. But it is recommended to consider these following items before sending in your application:

  • Closing costs in Nevada average a hefty $5,329. The best option is to pay those closing costs in cash. But many people roll that cost into their new loan. Either way, know that it is best to stay in your home for several years after you refinance or it may not be financially worthwhile. Assuming you save $100 per month on your mortgage payment, you would need to stay in the house for 50 months to break even.
  • What is your current interest rate? Many mortgage experts say you should refinance if you can save .75% to 1% on your rate. If you cannot save that much, you may want to leave your mortgage alone and consider a home equity loan instead.
  • Taking on a higher mortgage has risks. You owe more money to the bank and if you cannot keep up on your payments, you could lose your home.
  • Thinking about refinancing into another 30-year mortgage? You will be starting over on your payments. Instead, see if you can refinance into a 15-year or 20-year mortgage. You’ll pay your loan off faster and save a lot on interest payments.

Final Thoughts on Nevada Cash-Out Refinance Rules & Guidelines

Home prices in Nevada have been on the rise, but it is uncertain what effect the COVID-19 pandemic will have on home values. If you have been on the fence about refinancing, you may want to do it sooner than later. These interest rates may not last, and home prices could fall in the coming months.

Nevada Cash-Out Mortgage News

  • Southern Nevada Home Prices Hit New Record: Current home prices in southern Nevada hit a new peak in March 2020, despite the coronavirus pandemic. The price of existing homes that month was $319,000. Many homeowners are taking advantage of low rates to refinance before volatility in the housing market leads to a drop in prices. (KXNT.Radio.com)
  • What to Expect in the Las Vegas Housing Market: It is expected that home prices in the short term will fall as the economic shock hits the Las Vegas economy, but housing prices will correct over the next one to two years. It could be best to refinance your home now before prices decline. (UNLV.edu)
  • Reno-Sparks Median Price Hits $415,000 in March, But How Long Will It Last? Home prices in the Reno area have hit record highs, but there are concerns about how long it will last. If you want to refinance your mortgage, now could be the time with low rates and high prices. (Nevadaappeal.com)

Rhode Island Cash-Out Refinance Rules & Guidelines

Have you been eying those low mortgage interest rates and wondering if now is the time to refinance for cash out? Home prices have risen 3% in Rhode Island since last year, so you could benefit from refinancing your mortgage, saving on your payment, and pulling out cash to remodel your home possibly.

Rhode Island Cash-Out Refinance Overview

The average home price in Rhode Island is $285,000, and many Rhode Islanders have owned their home for years. So, they have a lot of equity they can tap if they want to improve their homes and make them worth even more.

With the coronavirus pandemic hitting the country and the economy, this is a good chance to get a low-interest rate on your first mortgage and get the equity you need to improve your property. When you eventually sell your home, a major renovation could really pay off in your wallet!

According to Investopedia, a cash-out refinance is defined as paying off your old mortgage with a new mortgage. It has a lower interest rate (hopefully) and a higher balance. The higher balance is from the equity that you are going to borrow from your home.

For example, if you have a $300,000 mortgage in Rhode Island and you owe $150,000 on it. You have at least $150,000 in equity, assuming the value has not dropped during COVID-19.

If you want to take out $100,000 in equity to build an extension and renovate your kitchen, you could refinance the property with a new balance of $250,000 and $100,000 in your pocket.

Regarding interest rate, if your rate goes from 4.5% to 3.5%, you could save $118 per month on your 30-year mortgage.

Rules & Guidelines on Rhode Island Cash-Out Refinance

Refinancing your mortgage for cash out is often a savvy move in uncertain economic times as interest rates tend to drop. But you have to qualify, and some lenders have been tightening their standards lately. Many lenders are checking income and employment more carefully now that the job market is so volatile.

Also, credit standards have been rising. To qualify for a refinance for a Freddie Mac or Fannie Mae-backed mortgage, you probably need a credit score of at least 680.

Investopedia also says you should have a debt-to-income (DTI) of no more than 43%, but many lenders now want 36%. The DTI is a comparison of your total monthly debt payments to your gross monthly income.

Most lenders in Rhode Island will not allow you to take out more than 80% of your home’s value, as well. So, there will still be equity in your home after your refinance. This protects you if home prices plunge so you are not upside down on your home.

Considerations with a Rhode Island Cash-Out Refinance

Are you ready to call the lender and pull cash out of your Rhode Island property? Keep a few things in mind before you do that. It’s always worthwhile to consider all the angles of a refinance.

  • Closing costs. The average closing costs in Rhode Island are $3,477. The best option is to pay your closing costs when you close the loan, but many Rhode Islanders choose to roll these costs into the loan. It is best to do a refinance if you are going to stay in the home for a few years. If you save $118 per month on your mortgage with your new rate, you would need to stay in the home for about 30 months to break even.
  • Your home is collateral for your loan. You already knew this, but it is worth a reminder when you increase the size of your mortgage. If you cannot pay, you could lose your home. Be sure your job is stable during the COVID-19 turmoil before you take on more debt.
  • If you have a low-interest rate already, getting a home equity loan might be a better bet to tap your equity. This is a second mortgage with a slightly higher interest rate that allows you to tap your equity while keeping your first mortgage in place.
  • Many people who refinance do so with a 30-year mortgage. They may not realize that they are starting over on their payments. So if you paid 15 years and get a new 30-year mortgage, that’s 30 more years of payments. If you are close to retirement, you may prefer to get a 15-year mortgage instead.
  • If you are betting writing off your mortgage interest, you must use your equity for home improvements, according to IRS rules.

Final Thoughts on Rhode Island Cash-Out Refinance Rules & Guidelines

Doing a cash-out refinance on your Rhode Island home can be a great move in the current interest rate environment. Improving your home with a new kitchen or extended family room will probably increase its value too. It’s a good idea to get that application going because who knows how long these low rates will last!

Rhode Island Cash-Out Mortgage News

  • Real Estate Market Collapsing, Falling Victim to COVID-19: The real estate market in Rhode Island collapsed in April as most sellers decided to not list their homes, open houses are restricted, and there is so much uncertainty in the economy. One bright spot is low-interest rates, however, which make refinancing attractive for some homeowners. (Whatsupnewp.com)
  • Rhode Island Housing Prices Hit Record Highs – 43% Increase Over Past Decade: The median home price of a property in Rhode Island hit $285,000 at the beginning of 2020, a 43% increase from a decade ago. The COVID-19 pandemic may begin to affect those prices, but it still could be a great time to refinance with super-low interest rates. (Golocalprove.com)
  • Home Values on the Rise In Rhode Island, Making It a Great Time to Refinance: Home values in Rhode Island are up 3% from a year ago and interest rates are low, so this could be the perfect time to refinance. (Moneywise.com)

Connecticut Cash-Out Refinance Rules & Guidelines

Home prices in Connecticut have risen 1.4% over the last year, according to Zillow.com. This growth, combined with super low-interest rates around 3.3% or 3.5% is leading to many in the state to refinance their mortgage before rates rise after the COVID-19 pandemic has receded.

Residents of Connecticut who have kept their jobs and have a solid credit score may be wise to do a cash-out refi to lower their interest rate and take out thousands of dollars of equity to make some home improvements, such as a family room extension, remodeled kitchen, or finished basement.

Below is important information to know about doing a cash-out refinance in Connecticut.

Connecticut Cash-Out Refinance Overview

Buying a home in Connecticut is a big expenditure; Zillow.com states the median home value in the state is nearly $260,000. That is the biggest investment in most people’s lives. It is smart to do what you can over the years to maintain that investment and improve it as money comes available.

With the COVID-19 pandemic, there is a unique opportunity to get access to the cash you need to renovate your kitchen or expand your family room. Interest rates are low, so a cash-out refinance can be very tempting.

A cash-out refinance means you are replacing your old mortgage with a new one that has a higher balance (and ideally) a lower interest rate. The amount that is above and beyond what you owe is your equity, and you can take that as a check at the closing table. You may pay a higher interest rate on a cash-out refinance than on just a regular refinance, but the rate still will be low in the current economic environment.

For example, say you got a $200,000 mortgage and you owe $100,000 on it. You have at least $100,000 in equity, assuming the property value has not gone below $200,000.

If you want to take out $50,000 in equity to expand your family room, you can refinance at $150,000. So, you would have a new loan with a $100,000 remaining balance, plus the additional $50,000 that is paid to you in cash. If you refinance a 4.5% loan to 3.5%, you may not have much change in payment. But you’ll have that cash you can use to improve and add value to your home.

Rules & Guidelines on Connecticut Cash-Out Refinance

Doing a cash-out refi is usually a smart move when interest rates are falling in uncertain economic times. But you will need to qualify. So, you need a steady job and steady income. Lenders are becoming more particular about verifying income and employment after the COVID-19 pandemic has rocked the US economy.

Also, you will probably need a 680 FICO score to qualify for a Fannie Mae or Freddie Mac-backed mortgage. A 36% back-end debt-to-income ratio (DTI) is usually required. This means your gross monthly income compared to your total monthly mortgage payments is less than 36%. Some FHA-approved lenders may allow a back-end TDI of 43%.

To qualify for a Connecticut refinance with cash out, you must have 20% equity in the home. Also, lenders will not allow an LTV of more than 80%, meaning you cannot borrow more than 80% of your home’s value. Some of the equity you have must be left in the home.

Considerations with a Connecticut Cash-Out Refinance

Ready to get that cash-out refinance rolling? Great! But it is a good idea to consider these points before calling your lender.

  • Closing costs. Connecticut closing costs average $3,853. Pay your closing costs in cash at closing if you can. If not, roll them into the loan, but you will pay interest on that money for years. A key consideration is how long you will stay in the house. If you save $100 per month on your new, low-interest rate, you need to stay in the home for 38 months to break even. If you plan to move sooner, refinancing may cost you more than it saves you.
  • Do you already have a low-interest rate below 4%? You could be better off with a home equity line of credit or a home equity loan. These second mortgages let you take out cash from your home but leave your first mortgage intact. You will pay a higher rate on a second mortgage because it is riskier for the lender. But a rate of 5% or 6% is a lot better than putting your home improvements on a credit card.
  • If you refinance with a 30-year mortgage, your payments are starting over. Paying on your home into retirement is not what most people want. Think about refinancing into a shorter-term loan, such as a 15-year mortgage. Bonus – your interest rate on a 15-year note will be even lower than on a 30-year.
  • You need to use your equity for home improvements to write off the interest on your loan. The IRS recently changed its rules on this matter.

Final Thoughts on Connecticut Cash-Out Refinance Rules & Guidelines

Pulling cash out with a refinance could be a great idea. Interest rates are low and home values are still on the rise. Improving your home will probably add to its value, too. So, if your job is secure and your credit is solid, look into a cash-out refinance soon before interest rates rise.

Connecticut Cash-Out Mortgage News

  • Low Mortgage Rates and Refinancing Keeping Some Mortgage Brokers in Connecticut Busy: Unclear economic times have driven down mortgage interest rates and have attracted may Connecticut homeowners to the idea of refinancing. Some want to reduce their 30-year monthly mortgage payment and others want to get a 15-year mortgage with about the same payment. (WTNH.com)
  • Coronavirus Leads Some to Consider Home Finance Moves: The coronavirus is putting a lot of people under financial stress. Fortunately, interest rates have dropped significantly, so for homeowners with a job and credit, you can do a cash-out refinance, lower your payment, and get the extra cash you need. (NBC Connecticut.com)
  • Mortgage Brokers and Lenders See Uptick in Refinancing Due to Pandemic: Mortgage brokers in southeastern Connecticut are seeing many homeowners considering forbearance if they have lost their job. But those who have not are considering taking advantage of low-interest rates and refinancing their mortgages. (Theday.com)

Oklahoma Cash-Out Refinance Rules & Guidelines

Mortgage interest rates are low, with some experts expecting rates for 30-year loans to fall below 3%. With property values increasing in Oklahoma at a 3.83% rate, this could be the perfect time to refinance your mortgage and pull out equity to perform some remodeling on your home.

Below is more information about cash-out refinances in Oklahoma to consider, but it is a good idea to act quickly because no one knows how long these low rates will last.

Oklahoma Cash-Out Refinance Overview

If you own your own home in Oklahoma, you probably have made the biggest financial investment of your life. Spending $150,000 or $200,000 on a home is a lot of money, and it makes sense to keep the house in good repair and renovate it when you can. But if you want to do a serious remodel, such as the kitchen, you could spend $30,000.

Instead of paying cash or using high-interest credit cards, you may consider a cash-out refinance loan on your Oklahoma home. Interest rates are in the 3.5% range these days, so it is possible to save a lot on your monthly payment if you have a higher rate. At the same time, you can take out thousands of dollars of your equity and improve your home, which adds to its value.

For example, if you are tired of those old Formica countertops and vinyl flooring, you could add gorgeous gray granite countertops, tile flooring, new cabinets, and modern appliances for $20,000 or $30,000.

If you have a $150,000 mortgage and owe $50,000 on it, you might refinance the mortgage for $75,000 and take the $25,000 in cash at closing. If your previous interest rate was over 4%, you could save $75, $100, or even more on your payment, too.

Rules & Guidelines on Oklahoma Cash-Out Refinance

If you want to apply for a new mortgage with cash out, you need to qualify it based on your income, credit score, work history, and debt-to-income ratio (DTI). Expect to need a credit score of 640 at least, with 700+ for the best interest rates.

Regarding DTI, if your loan is backed by Fannie Mae or Freddie Mac, you probably need a back-end DTI of no more than 36%. This means all of your monthly debt payments compared to your gross monthly income is no more than 36%. If you are getting an FHA loan, they are more lenient on DTIs; you could qualify with a 43% back-end ratio.

Regulations also require you to have at least 20% equity in your home to qualify. Also, most lenders will not let you borrow more than 80% of your home’s value. This protects you from overextending yourself if home prices crash, so you do not owe more than the home is worth.

Considerations with an Oklahoma Cash-Out Refinance

With rising property values in Oklahoma and low-interest rates, a cash-out refinance is tempting! Before you pull the trigger, think about the following points:

  • You need to pay closing costs on your new loan, which average $3,001 in Oklahoma. The best thing to do is pay your closing costs out of pocket at the closing table. However, many borrowers wrap the closing costs into the loan; be aware this means you are paying interest on your closing costs for the life of the loan. It also is important to think about how long you are going to live in the home. Say you save $100 in your monthly mortgage payment with your new interest rate. You have to stay in your home for about 30 months to break even.
  • Are you expecting to write off the interest on the equity you are pulling out? The IRS requires you to use the money to make improvements on your home. If you use the money for another purpose, you cannot write off the interest.
  • Think about what your current interest rate is. If you are paying 4% or more, it may make sense to refinance at 3.5% or 3.3%. If your rate is lower than 4%, you could consider doing a home equity loan instead. You can still tap your equity but leave your first mortgage and low-interest rate in place. Your lender can talk to you and help you decide what is best in your situation.
  • If you refinance into a 30-year loan, your repayment schedule starts over. This probably isn’t a good idea if you have been paying on the loan for a long time. Think about refinancing into a 15-year loan so you save interest and pay your loan off faster.

Final Thoughts on Oklahoma Cash-Out Refinance Rules & Guidelines

Interest rates are low in the United States as of April 2020 as the COVID-19 pandemic has caused much economic upheaval. This troubling turn of events does offer a silver lining to Oklahomans who want to refinance their mortgages and pull out cash. Talk to your lender today about a cash-out refinance so you can save every month and get the cash you need to beautify your home.

Oklahoma Cash-Out Mortgage News

  • Real Estate, Housing Industry Adjusting to Coronavirus, Stay-At-Home Orders: The spread of the coronavirus across Oklahoma and stay-at-home orders have affected the housing and real estate industry. There are now fewer homes for sale and no open houses occurring. But interest rates are low, so current Oklahoma homeowners are taking advantage by doing cash-out refinances on their mortgages. (Normantranscript.com)
  • US Long-Term Mortgage Rates Down to 3.33% in Early April: While the COVID-19 pandemic has caused economic chaos and uncertainty in the housing market, many homeowners in Oklahoma are seeing record-low interest rates and are running to refinance their mortgages before it’s too late. (WSET.com)
  • Home Values Rose 3.83% Last Year In Oklahoma: Home prices have been rising at a steady clip in Oklahoma, and with today’s low-interest rates, there could not be a better time to refinance your mortgage and save a bundle. (Moneywise.com)

Kansas Cash-Out Refinance Rules & Guidelines

As Kansas home values have risen 4% over the last year, according to Zillow, more homeowners are thinking about a cash-out refinance to take advantage of their growing equity. Plus, mortgage rates are lower than they have been in months because of the coronavirus pandemic.

Kansans with steady jobs and a good credit score may want to get a cash-out refinance done and lower their rate, plus take thousands of dollars of equity and put it to good use.

Below is information you need to know about cash-out refinances in Kansas and whether it may be the right choice for you.

Kansas Cash-Out Refinance Overview

Buying a home in Kansas is a good, affordable investment, with a median home price of $157,000. Spending that kind of money on a home means most Kansans want to do what they can to improve and maintain their property.

Some of the popular options for home renovations in Kansas include redoing the kitchen or bathroom. But redoing a kitchen can cost $30,000 or more.

Instead of relying on credit cards or personal loans, a great option in this low-interest-rate environment is a cash-out refinance. This loan involves taking on a larger mortgage compared to your first one and taking the equity as cash. The difference between your new and old loan is what you can use for your home renovations.

For example, if you have a mortgage of $200,000 in Kansas and a balance of $100,000, you may refinance the mortgage to a lower rate and take out $30,000 in cash, leaving a new balance of $130,000. If your mortgage interest rate drops from 4.5% to 3.5%, you could see little change in your payment even with a higher balance.

Rules & Guidelines on Kansas Cash-Out Refinance

Doing a cash-out refinance is usually a great idea when interest rates are this low. But you need to qualify. Depending on your Kansas lender, you may need a credit score of 620, 640, or 680 to qualify. Best rates are for people with 740 and higher FICO scores.

If your loan is backed by Fannie Mae or Freddie Mac, you will need a back-end debt-to-income (DTI) ratio of 36% or less. This means your total monthly debt payments each month cannot exceed 36% of your gross monthly income. If you are getting an FHA refinance, you could qualify with 43%.

To qualify, you must have at least 20% equity in your Kansas home, and you cannot borrow more than 80% of its current value.

Considerations with a Kansas Cash-Out Refinance

Property values are rising in Kansas and interest rates are low, so you may like the idea of a cash-out refinance. But think about these factors before making a decision:

  • Closing costs on a refinance in Kansas average $2,500. You can pay those in cash at closing or roll them into your loan (but you pay interest on closing costs for the life of the loan). Before you sign the application, think about how long you will live in the property. It will take approximately 25 months for you to make your closing costs back, assuming you save $100 per month on your mortgage. Plan to live in your home for several years if you refinance.
  • If you want to deduct mortgage interest off your taxes, you need to use the equity to make substantial improvements to your Kansas home, according to the IRS.
  • Is your current interest rate under 4%? You may be better off getting a home equity loan, which is a second mortgage that allows you to take out equity without affecting your first mortgage. Interest rates on home equity loans are higher than first mortgages but still low, compared to personal loans and credit cards. If you cannot save at least .5% on your first mortgage rate, a second mortgage could be a better choice.
  • If you refinance with a 30-year loan, remember you are starting over on your payments. Do you want to still be paying on your home when you’re 80? If not, think about refinancing into a 15-year loan, especially if you have been paying on your mortgage for 10 or more years.
  • Interest rates could be 3.3%, but you need to have a good credit score and DTI to qualify. If you don’t have the best credit, you could benefit by paying down debt before you refinance.

Final Thoughts on Kansas Cash-Out Refinance Rules & Guidelines

The housing market in April 2020 is in a fluctuating state. Because of the COVID-19 pandemic, interest rates are low, but home values have not yet significantly declined. But if the recession is long-lasting, price declines may be inevitable. That is why it could be the smart move to do your cash-out refinance today while rates are low and your property value is still unaffected by the current economic situation.

Kansas Cash-Out Mortgage News

  • Kansas City Home Prices Are Rising Faster Than Dallas, Denver, and Nashville: Home prices in Kansas City, Kansas, and Missouri increased rapidly in 2019, a 4.6% increase over the year before. While it is unclear how much home prices will drop in the current recession, interest rates are very low, so it could be the perfect time for Kansas homeowners to refinance. (Kansascity.com)
  • KC Home Prices Probably Won’t Take a Coronavirus Hit, Zillow Says: A new study from Zillow looked at earlier health epidemics similar to COVID-19 and found that home prices did not fall the way they do in most recessions. This could spell great news for homeowners who want to do a cash-out refinance with a low-interest rate. (Bizjournals.com)
  • House Prices in Kansas Gained 5.7% in February, According to FHFA: Home prices in Kansas continued to rise in February 2020, and the Fed’s pledge to buy unlimited amounts of bonds to encourage lending will probably drive down the average 30-year, fixed mortgage rate to 2.9% in Q2 and Q3 in 2020. (Housingwire.com)

Kentucky Cash-Out Refinance Rules & Guidelines

Have you been watching falling interest rates and wondering if it is time to do a cash-out refinance on your Kentucky home? Home prices in Kentucky rose approximately 5% as of early 2020 from the year before, and mortgage rates have fallen as low as 3.29% in recent weeks as COVID-19 pandemic has hit the nation.

With rising home prices and rock-bottom interest rates, applying for a cash-out refinance in Kentucky could be a wise financial move. With a lower payment and equity in your pocket, you could fix up your home, pay off credit cards, fund a college education, and more.

Below is more information about doing a cash-out refi in Kentucky, but act fast because rates may not stay this low for long.

Kentucky Cash-Out Refinance Overview

People who own their homes in Kentucky have spent $200,000 or so on the biggest financial investment of their lives. Spending so much money on your home makes it natural for homeowners to want to improve the home and grow its value. But a major home remodel, such as a kitchen, can cost $20,000 or $30,000. How do you pay for that?

You could get a personal loan or run up your credit cards, but you will pay 15% or 20% interest rates. Another idea is to do a cash-out refinance on your home, especially with mortgage rates in the low to mid-3s right now. A cash-out refinance allows you to get a new, lower-rate mortgage, and pull out thousands of dollars of equity to improve your home.

For instance, if you want to upgrade that 80s-style kitchen with sleek granite countertops, cabinets, tile flooring, and contemporary appliances, you can spend at least $20,000. If you have a $200,000 mortgage and owe $100,000, you could refinance the mortgage for $120,000 and take $20,000 in cash when you close. If your old interest rate was 4.5% and your new one is 3.5%, you may be able to walk away with a similar payment as before.

Rules & Guidelines on Kentucky Cash-Out Refinance

When you apply for a new mortgage loan, you have to qualify for it based on your financial data, credit score, work history and salary, and debt-to-income ratio (DTI). You will need a credit score of at least 640 to qualify for many refinance programs, and a score over 700 is ideal for the lowest interest rates.

Fannie Mae and Freddie Mac prefer borrowers with a back-end DTI of 36% or less. This means your total monthly debt payments, including mortgage, compared to your gross monthly income is less than 36%. But if you are getting an FHA cash-out refinance, you may be able to qualify with a 43% back-end ratio.

You also need to have a minimum of 20% equity in your Kentucky home. Additionally, it is prohibited to borrow more than 80% of your home’s current, appraised value.

Considerations with a Kentucky Cash-Out Refinance

Property values in Kentucky have been rising and interest rates are low, so a cash-out refinance sounds like it makes sense. But consider these points before making your decision:

  • Closing costs in Kentucky average $2.447. You can pay your closing costs when you close the loan or wrap them into the mortgage; you will pay interest over the life of the loan on your closing costs if you choose the latter. Think about how long you plan to stay in the home. If you save $100 per month on your mortgage at a lower rate, you need to stay in the home 24 months to break even. Refinances are best for people who plan to stay in the home for several years.
  • Do you want to take a tax write off when you pull out your equity? New IRS rules state that the money has to be used for substantial improvements to the property. You can’t write off the mortgage interest if you use the money to pay off credit cards.
  • What is your current mortgage interest rate? If it is over 4%, a cash-out refinance may be your best option. But if your rate is in the 3’s, you will not save as much by refinancing. Instead, think about a home equity line of credit (HELOC) or home equity line. These are second mortgages that tap the equity in your home without affecting your first mortgage.
  • If you decide to refinance with a 30-year mortgage, you are restarting the payment clock. This doesn’t make sense if you have paid on your mortgage for 20 years. Consider refinancing into a 15-year mortgage to pay off your loan faster and save interest.

Final Thoughts on Kentucky Cash-Out Refinance Rules & Guidelines

Mortgage interest rates are very low today as the COVID-19 pandemic has taken a toll on the economy. And home values in Kentucky have not dropped appreciably yet, but they could as the recession takes hold. If you have been thinking about a lower interest rate and putting cash in your pocket for home renovations, strongly consider doing your cash-out refinance as soon as you can before economic conditions change.

Kentucky Cash-Out Mortgage News

  • Kentucky Real Estate Market Had Momentum Prior to COVID-19 Pandemic; Future Is Hard to Predict: The median sale price for Kentucky homes was up 5.1% over the year before for a median home value of $168,000. The COVID-19 pandemic is making for an uncertain real estate market in Kentucky now, so people on the fence about refinancing may want to take the plunge before prices drop. (NKYTribune.com)
  • Home Values Were Up 5% in Kentucky in 2019: Home values were climbing at a healthy 5% last year, so homeowners who were thinking about refinancing and pulling out cash were in a good position. Now with rates so low, the time has never been better to get a lower rate and pull out equity. (Moneywise.com)
  • US Long-Term Mortgage Rates Fall to 3.33%: Lower mortgage rates mean that more people in Kentucky may try to buy a home or refinance their mortgage, but as unemployment swells during the coronavirus epidemic, it is unclear how many of those people will qualify for mortgages. (WWMT.com)

Iowa Cash-Out Refinance Rules & Guidelines

Home prices in Iowa have been rising at approximately 5.2% for the last few years, according to Zillow.com. As Iowans have seen the equity and value of their homes increase, more are being tempted to do a cash-out refinance while interest rates are so low due to the COVID-19 pandemic.

Rates have fallen as low as 3.29% for a 30-year, fixed-rate mortgage as of March 2020. With rates like that, it is possible to significantly reduce your mortgage payment, and pull out cash for whatever you want – home remodels, pay off debt, college expenses, etc.

Thinking about a cash-out refinance? Act quickly because rates could rise and property values could fall as the current recession starts to affect the housing market.

Below is more information about a cash-out refinance in Iowa.

Iowa Cash-Out Refinance Overview

When you buy a house in Iowa, you can expect to spend between $100,000 and $200,000, on average. That is the biggest investment in most Iowans’ lives. Spending that kind of money on a home makes people want to improve and enhance their value over time. But a home renovation, such as a kitchen remodel, can cost $30,000. Who has that kind of money lying around?

That’s where a cash-out refinance can help you, especially when interest rates are so low right now. A cash-out refi allows you to refinance to a new, lower rate, and pull out thousands of dollars of your hard-earned equity. Most people put that money into home renovations, which makes the home more enjoyable to live in, and adds value to the property when you sell.

For example, if you want to upgrade your kitchen with new counters, cabinets, flooring, and modern appliances, this could cost about $30,000. If you have a $250,000 mortgage and owe $100,000, you can refinance the mortgage for $130,000 at a lower rate and take the $30,000 in cash at the closing table. If your old rate was in the 4’s and you refinance at 3.5%, you may be able to have the same mortgage payment or even a little less.

Rules & Guidelines on Iowa Cash-Out Refinance

Like any new home loan, you will need to qualify for it based on your financial documents, credit score, work history, and debt-to-income ratio (DTI). Generally, expect to need a 640 to 680 credit score to refinance into a new mortgage, but the best rates are reserved for people with 700 or higher scores.

Also, Fannie Mae and Freddie Mac like borrowers with 36% or less DTI. This is a comparison between your total monthly debt payments and your gross monthly income.

Also, it is required in Iowa to have at least 20% equity in your home, and you cannot have refinanced your home in the previous 12 months. Further, you cannot borrow more than 80% of your home’s current value.

Considerations With an Iowa Cash-Out Refinance

With interest rates so low and property values in Iowa generally rising, it might seem that doing a cash-out refinance makes perfect sense. But it always is wise to consider all the particulars on such a big financial move first:

  • You will pay closing costs. In Iowa, they average $1,913. You can pay those in cash at closing or wrap them into your loan. It is vital to consider how long you plan to stay in the home before you refinance. If you save $100 per month on your mortgage with the new rate, it would take 19 months to break even. So, plan to stay in the home for a few years for the refinance to make sense financially.
  • If you are planning to write off the interest on your cash-out refinance, the IRS says you only can do that if the equity is being used for ‘substantial improvements’ to your home. You can pay off credit cards with your equity, but you cannot write off the interest in that case.
  • Do you have an interest rate in the high 3s or low 4s right now? You may want to keep the first mortgage in place and opt for a home equity loan instead. This is a second mortgage with a fixed rate that allows you to tap your equity without changing your first mortgage. The rates on second mortgages are a bit higher because they are a greater risk to the lender, but you still can save a lot over personal loans or credit cards.
  • If you get a new 30-year mortgage, you are starting all over on your payments. If you have paid your loan for 15 years, it may be better to refinance into a 15-year loan so you are not paying 30 more years. The payment is higher, but you’ll own your home faster and save tons in interest.

Final Thoughts on Iowa Cash-Out Refinance Rules & Guidelines

Interest rates across the country are very low right now, and home values have yet to take a serious hit in the current recession. If you have been dreaming about lowering your interest rate and pulling cash out of your Iowa home, consider doing it as soon as possible before financial conditions change.

Iowa Cash-Out Mortgage News

  • Iowa Now Allows Remote Online Notarization Amid Coronavirus Pandemic: Iowa has an emergency law in place that suspends the requirement for a notary to be physically present. This change is allowing for easier home purchases and cash-out refinances to take place. (Housingwire.com)
  • New Home Sales Drop 15% in March as Coronavirus Hits: Sales of new homes in the US dropped 15% in March as the coronavirus hit the housing market. In Iowa, declining sales could lead to a drop in property values that could affect the plans of those who want to pull cash out of their homes while interest rates are at record lows. (CBS2Iowa.com)
  • Home Values Still Rising in Iowa as of End of 2019: Last year, home prices in Iowa rose by 4.52% on average, with a median home price of $145,000. If home prices do not decline during the COVID-19 epidemic too much, Iowans still may be able to do a cash-out refinance to lower their interest rate and pull out cash. (Moneywise.com)

Michigan Cash-Out Refinance Rules & Guidelines

Have you been eying those low mortgage interest rates in Michigan and thinking about a cash-out refinance? This could be a great time to do it because rates are in the mid-3s, and home prices in Michigan have been rising nicely for the last several years. Zillow reports a 5.2% year-over-year increase in home values for Michigan homeowners.

With low rates and increasing property values, you may be able to get a lower interest rate on your mortgage and pull cash out of your Michigan home to renovate your kitchen, pay off debt, send a child to college, etc.

Keep reading to learn more about doing a Michigan cash-out refinance. But we don’t recommend you wait: Interest rates could head up when the COVID-19 crisis passes, and property values may decline as the recession leads to a drop in economic activity and home purchases.

Michigan Cash-Out Refinance Overview

When you purchased your home in Detroit or Lansing, you made a big financial investment. Most homeowners have a lot of pride in their purchase and want to add value to their home over the years. But if you want to upgrade your kitchen, it can cost $20,000 or $30,000. How will you pay for it?

If you have been paying faithfully on your mortgage for several years, a cash-out refinance loan could be the ticket. People who have a current interest rate of 4% or 5% may benefit by refinancing their mortgage and pulling out equity to remodel their home. Renovating the kitchen is a great way to add value to your Michigan home, as is adding a family room extension.

Let’s say you have a $300,000 mortgage and you owe $150,000 on it. If you qualify, you can refinance and pull out $30,000, leaving you with a new $180,000 loan. If the rate on it dropped by 1%, you may not even pay that much more each month.

Rules & Guidelines on Michigan Cash-Out Refinance

Your Michigan mortgage lender will require you to apply for your new loan and prove that you can make the higher payments because you will have a higher mortgage. Your credit score should be in at least the mid-600s to qualify, but you will get the best rates with a 740 or higher score.

Lenders also look for a debt-to-income ratio of 36% or lower, in most cases. Your DTI is a comparison of your total monthly debt payments to your gross monthly income.

To qualify for a cash-out refinance, you need to have at least 20% equity. You also cannot borrow more than 80% of the home’s value.

Here’s another example: Say your Detroit home has a current appraised value of $250,000 and you owe $150,000. You have $100,000 in equity, which is 40% of the home’s value. You cannot borrow all of that $100,000, but you can borrow $50,000 to upgrade your home. So, you will have a new loan of $200,000 and a check for $50,000 when you close.

Considerations With a Michigan Cash-Out Refinance

Michigan home values are rising 5.2% per year and rates are 3.5%, so a cash-out refinance is a great deal, right? Usually, but it always pays to look at the big picture. Consider these points:

  • You have to pay closing costs when you get your new loan. Michigan closing costs average $2,888. You can pay these costs at closing or wrap them into your new loan. It is important to think about how long you will live in the home. If you save $100 per month on your mortgage, you would need to stay in the home for 28 months to break even. Refinances are generally for people who intend to stay in their homes for a few years at least.
  • You need a new appraisal to qualify for a new mortgage. The lender needs to see if your home is worth what you want to borrow. An appraisal runs about $300 or $500.
  • You may not qualify for the best interest rates unless your credit score is above 700.
  • If you have a low-interest rate in the 3’s, it might not be logical to refinance. Consider a home equity loan instead that leaves your first mortgage in place. It has a fixed rate and allows you to pull out the equity you need.

Final Thoughts on a Michigan Cash-Out Refinance Rules and Guidelines

Interest rates are very low right now as there is so much economic uncertainty in the economy today. Also, home values are rising for now in Michigan, but this could change as the effects of the current recession take hold.

If you have been thinking about a cash-out refinance in Michigan, we recommend getting it done soon as it is unclear how long these economic conditions will last.

Michigan Cash-Out Mortgage News

  • It Just Got Harder to Refinance a Mortgage: Who Will Face More Difficulty: Recent increases in jobless claims are creating new roadblocks for consumers who thought they could get a lower interest rate. Also, people want to pull cash out of their homes to get through tough economic times, but it’s difficult to get a mortgage when you have either lost your job or have reduced hours. (Freep.com)
  • Historic Low Mortgage Rates Leading Many in Michigan to Refinance: One side effect of the COVID-19 crisis is a possible boost to the housing market. Many people in Michigan with higher interest rates from a decade ago have been refinancing their mortgages and getting cash out to weather the current economic storm. (WWMT.com)
  • Much of Michigan Real Estate Market at a Standstill in COVID-19 Outbreak: Realtors in Michigan are unable to show homes, which makes it less likely that sellers will put their homes on the market. This presents a problem for the overall real estate market as prices could drop and affect those who want to take advantage of low rates and refinance. (TCTimes.com)

Indiana Cash-Out Refinance Rules & Guidelines

Home values in Indiana have been rising in the last year, with a 5.5% average increase across the state, according to Zillow.com, and the median home value is $158,000.

With mortgage rates averaging as low as 3.29% during the COVID-19 pandemic, many Indiana homeowners have wondered if this is the time to do a cash-out refinance. For many of them, the answer is probably ‘yes.’ While rates are low and home prices have not declined, now could be the best time in years to get a lower rate and pull out equity.

Below is more information about doing a cash-out refinance in Indiana.

Indiana Cash-Out Refinance Overview

Housing is generally inexpensive in Indiana, but it is still the most significant investment for most people. When you spend $150,000 or $200,000 on your home, you want to do what you can to upgrade and preserved it over the years. But with so much economic uncertainty today, who wants to pull $10,000 or $20,000 out of savings to remodel your home?

A great idea in today’s low-interest-rate environment is to do a cash-out refinance. This means you replace your old mortgage with a new, lower-rate loan and take out some equity to do those home improvements you want.

Many Indiana homeowners with mortgages from a decade ago may be able to refinance their mortgage for 1% less and pull out $15,000 or $20,000 to upgrade their kitchen; this is one of the best bang-for-your-buck home improvements, according to Homelight.com.

Here’s an example: If your mortgage is $200,000 and you have $100,000 in home equity, you can replace your current mortgage with a new one for $120,000. If you qualify for the loan and you are borrowing less than 80% of the home’s value, you should be able to do this cash-out refinance.

Rules & Guidelines on Indiana Cash-Out Refinance

To do a cash-out refinance in Indiana, you have to re-qualify for a  mortgage. You will need at least a 640 to 680 credit score, and over 700 is better for the best interest rates. Also, a debt-to-income ratio of 36% or less is more likely to be approved. This means your total monthly debt payments compared to your gross monthly income is not above 36%.

If you are doing an FHA loan, you may be able to have a higher DTI and lower credit score, but you probably need to pay for mortgage insurance.

Also, you need 20% equity or more to do a cash-out refinance. Laws and regulations prohibit homeowners in Indiana from borrowing more than 80% of their home’s value.

Considerations with an Indiana Cash-Out Refinance

Because home prices are rising in the state and interest rates are scraping the bottom of the barrel, now is a great time to refinance. But keep these factors in mind before you make the final call.

  • Closing costs in the state average $1,992. The best route to save money is to pay your closing costs when the loan closes. You also can wrap the costs into the loan, but you will be paying interest on that money. Consider how long you will be living in the home before you decide to do your refinance. If you save $1000 per month on your mortgage, you need to stay in the house for about 20 months to break even on your closing costs.
  • If you have a first mortgage interest rate under 4%, your better option could be a home equity line of credit or home equity loan. These are second mortgages that also come with fairly low-interest rates. They can be the source of equity to get your home project completed.
  • Getting a new mortgage means restarting your mortgage payment clock. Have you been paying 10 years on your 30-year loan? Consider refinancing into a 15-year note if you can swing the payment. That way you pay off your loan faster and save tens of thousands in interest.
  • You may be able to write off the mortgage interest on your cash-out refinance if you are using the money to improve your home. New IRS rules state that the money must be used to make substantial improvements to the property to qualify for the tax write off.

Final Thoughts on an Indiana Cash-Out Refinance Rules and Guidelines

As of mid-April, 2020, 30-year, fixed interest rates are approximately 3.3%. The coronavirus pandemic brought much of the US economy to a standstill and has caused rates to plummet. This could be the perfect time to refinance for cash out and score a lower rate, too. The economy may pick up in the fall as the virus fades, so getting a new, lower-rate mortgage with cash out now could be the best move. 

Indiana Cash-Out Refinance News

  • Area Lenders Handle Wave of Refinancing: Many northeast Indiana’s homeowners have found an upside to the COVID-19 virus concerns. Federal Reserve rate cuts have pushed down mortgage rates to as low as 3.29% for a 30-year fixed-rate mortgage, making it a great time to refinance for some borrowers. (FWBusiness.com)
  • Indiana Homeowners Have Been Slow to Refinance During the COVID-19 Pandemic: Refinance applications in the Hoosier State are up 220% compared to 2019. This is a lower rate compared to many other states. (Finance.Yahoo.com)
  • Home Values Have Been Rising Rapidly in Most of Indiana: At the end of 2019, home values had risen a healthy 8% over a year ago, making it a good time to do a cash-out refinance with the low-interest rates. (Moneywise.com)

Arkansas Cash-Out Refinance Rules & Guidelines

Home prices in Arkansas have been on the rise from 2019 to 2020, with a 3.8% increase reported by Zillow.com. That fact, coupled with the super-low interest rates during the coronavirus pandemic, could make this the ideal for the Arkansas homeowner to do a cash-out refinance.

With a cash-out refi, you may lower your monthly payment, and get the cash you need to spruce up your home. Interested? Keep reading to learn how you can qualify for an Arkansas cash-out refinance.

Arkansas Cash-Out Refinance Overview

When you buy a home in Arkansas, you may spend between $125,000 and $200,000, on average. After putting so much money into an investment, many Arkansans want to upgrade their home with various improvements, such as a better kitchen, new bathroom, or expanded family room.

Getting the money from a personal loan or credit card will carry a high-interest rate. A better option for many homeowners is to do a cash-out refinance. Get a lower interest rate and pull thousands of equity out of your home to do the remodel of your dreams.

For example, say you have a $200,000 mortgage and you owe $75,000 on it. You could refinance it for $100,000 and take the $25,000 in cash to remodel your kitchen with new appliances, cabinets, flooring, and granite countertops.

An upgraded kitchen adds a lot of value to your property and makes it easier to sell. That is why it is one of the most popular upgrades in America today.

Rules & Guidelines on Arkansas Cash-Out Refinance

When you take out a new loan, there are qualifications you must meet to be approved by the lender. Expect to need a credit score of 640 to 680 to qualify for a Fannie or Freddie-backed loan. If you work with FHA, you can have a lower credit score and get a low rate, but you will have mortgage insurance expenses even if you have more than 20% equity in the home.

You also should have a debt-to-income ratio of approximately 36%, which means your total debt obligations compared to your gross monthly income should not be more than 36%. Some lenders affiliated with the FHA may allow higher DTIs.

Like almost all states, you need at least 20% equity in your property to qualify for a refinance. And you may not take out more than 80% of your home’s appraised value.

Considerations With an Arkansas Cash-Out Refinance

Doing a cash-out refi with rising home values and low-interest rates can be a terrific idea. But consider these factors before you make your decision.

  • Closing costs. Most homes in the state sell for between $100,000 and $200,000. The average closing cost in the state is $2,425. These costs need to be paid when you close the loan, but you may wrap them into the new mortgage if you like. Assuming you save $100 per month on your new, lower interest rate, you would need to stay in the home for about two years to break even on your closing costs. Want to move next year? You might not want to refinance because your closing costs will outweigh your interest savings.
  • Think you can write off the mortgage interest on your cash-out refinance? After changes in the tax laws, you only can do this if you make ‘substantial improvements’ to your Arkansas home.
  • If your current interest rate is 4% or less, you may want to keep your mortgage in place and get a second mortgage. This can be either a home equity line of credit or a home equity loan. You can get a low-interest rate on this money, although not as low as a first mortgage. Closing costs also apply to second mortgages.
  • If you get a new 30-year mortgage, you are starting over on your payments. Starting over on your mortgage may be undesirable if you have made 10 or 15 years of payments already. Look at a 15-year mortgage to see if you can qualify for the higher payments. You’ll pay off your loan much faster, and the rate is lower than a 30-year loan.
  • You will need a new appraisal with your mortgage application, which costs between $300 and $500.
  • Want to improve your credit score before you refinance? The best way is to pay down credit card and personal loan debt. You can raise your score by 20 or more points by paying off a $5000 or $10,000 credit card.

Final Thoughts on Arkansas Cash-Out Refinance Rules & Guidelines

Home values have been on the rise in Arkansas, and interest rates are hovering in the mid-3’s as the COVID-19 epidemic has negatively affected the US economy. Before home prices decline too much as real estate activity slows, consider getting your mortgage refinance application in so you can take advantage of interest savings and put that hard-earned equity in your pocket.

Arkansas Cash-Out Refinance News

  • It Just Got Harder to Refinance a Mortgage: Who Is Going to Face More Difficulty?: Record spikes in jobless claims are creating difficulties for consumers who thought they could do a cash-out refinance in Arkansas. People who are laid off have trouble qualifying for a mortgage, even if they have unemployment insurance. (Arkansasnews.com)
  • NW Arkansas Home Sales Rose 6.3% in 2019: Northwest Arkansas had another hot year in housing in 2019, with more than 10,000 properties sold in Benton and Washington counties. The median home price in this part of the state rose 7% to $208,000. Some in that area are considering low-interest rates and their home equity to do a cash-out refinance soon while home prices hold steady. (Talkbusiness.net)
  • Arkansas Has One of the Most Affordable Housing Markets in the Country: If you have bought a house in Arkansas, you have purchased a home in one of the cheapest parts of the country. And property values have risen in most parts of the state, so it may be time to do a cash-out refinance while rates are so low. (Homesnacks.net)

Alabama Cash-Out Refinance Rules & Guidelines

Home values have been on the rise in the last year in Alabama, with a 5.5% increase year-over-year. This increase means Alabamans’ equity stake in their homes has risen.

Plus, interest rates during the coronavirus are near all-time lows. This is a great time to consider a cash-out refinance to tap some of your equity in Alabama. It is uncertain how long the economic slowdown will run, so it’s smart to pull the trigger on the refi before home values are affected.

Below is more information about an Alabama cash-out refinance.

Alabama Cash-Out Refinance Overview

Buying a home in Alabama is a large investment, and you can spend $200,000 or more. When you drop that kind of cash on your home, you probably want to upgrade and enhance it so that it is more comfortable for your family. This also increases the value of the home when you eventually sell.

But we all know home improvements are costly. For example, one of the renovations that home buyers value most is a kitchen makeover. Depending on how far you go, Homeadvisor.com says it can cost between $14,000 and $40,000. Do you want to pull that cash out of savings or your investments?

Many Alabamans have seen rising property values and have enough equity in their homes to pay for a kitchen makeover. A cash-out refinance can drop your interest rate and give you the cash you need for your new kitchen. Having that sparkling, fancy new kitchen when you put it on the market will make it really appealing to potential buyers.

Let’s say you want to go all-out and want a kitchen upgrade with new tall cabinets, granite countertops, modern lighting and appliances for $40,000. If you owe $100,000 on a $200,000 mortgage, you may be able to refinance it for $140,000 and take the $40,000 to assemble your dream kitchen.

Rules & Guidelines on Alabama Cash-Out Refinance

To qualify for your new mortgage,  follow the rules and guidelines established by the lender and the state of Alabama. You will need a credit score in the mid-600s at least to qualify, but the lowest rates are for people with over a 700 score. Try to keep your debt-to-income ratio at approximately 36% as well; this indicates to the lender that you are not overextended.

Alabama laws require the homeowner to keep at least 20% equity in the property. You may not borrow more than 80% of your home’s value. Your lender will check the current appraisal to determine what your home is worth and exactly how much you can borrow.

Considerations With an Alabama Cash-Out Refinance

A cash-out refi when your Alabama home value is rising and interest rates are falling is usually a good deal. But as with any big financial consideration, it is recommended to consider all sides of the transaction before making the final call.

  • Doing a cash-out refinance may not be the best choice if you have a rate in the 3.5% range. If so, think about doing a home equity loan, which offers a low fixed rate and leaves your first mortgage in place.
  • Have you paid on your mortgage for 10 or 15 years? Then a refinance into a new 30-year loan may not be for you. Consider a 15-year mortgage instead. The payments are higher, but your loan will be paid off much faster and you will save thousands in interest.
  • How you plan to use your equity dictates whether it is tax-deductible interest or not. Current IRS law states if the funds are being used to improve the property, then the interest on the equity you take out is tax-deductible.
  • Do you plan to move soon? You should consider the closing costs on your cash-out refinance. The average closing costs in this state are $2,653 after taxes. If you get a lower interest rate on your new loan and save $100 per month, it would take about 27 months for you to break even and make the cost worth it. If you plan to move before 27 months, you may want to reconsider your refinance.
  • You need to have a good credit score and low debt to qualify for the lowest rates with a Fannie or Freddie-backed mortgage. FHA loans are more forgiving and have low-interest rates, but you may have to pay for mortgage insurance.

Final Thoughts on Alabama Cash-Out Refinance Rules & Guidelines

Home prices in Alabama are rising at a healthy clip, so many Alabamans have cash available to tap. Interest rates are well below 4%, too, so a cash-out refinance can be a simple way to get the cash you need and do that home renovation project you have been thinking of for years.

Alabama Cash-Out Mortgage News

  • COVID-19 Effects on Buying, Refinancing a Home: With interest rates dropping, many Alabamans are considering purchasing or refinancing a home. With the economic uncertainty, is it the right time? May experts say it is a great time because the low rates will rebound as soon as economic activity picks up and investors start pulling money from bonds and putting them into stocks. (WSFA.com)
  • Home Values Are Rising in Alabama: Home values in Alabama rose 4.78% in 2019 from a year earlier and interest rates are well below 4%, so many financial advisors recommend doing a cash-out refinance before home prices drop and interest rates rise. (Moneywise.com)
  • What’s Next For Alabama’s Housing Market in the Pandemic? The housing market in Alabama was off to a fast start in 2020 before the COVID-19 pandemic hit. Housing starts were up 23%. Many experts do not think Alabama will see that much of a housing slowdown in this recession, and the low rates will cause many homeowners to refinance their mortgages. (AL.com)

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)

Minnesota Cash-Out Refinance Rules & Guidelines

Home prices in Minnesota were rising 4.44% year over year before the coronavirus hit with a median value of $263,000, according to Zillow.com. And mortgage interest rates have been approximately 3.3% for the week. If you have been on the bubble about refinancing for cash-out in Minnesota, now could be the time to take advantage of this unique financial opportunity.

Below is the information you need to know about a cash-out refinance in Minnesota.

Minnesota Cash-Out Refinance Overview

With a median home value of $263,000 in the state, buying a home in Minnesota is most people’s most significant investment. When you drop that kind of cash into a property, it’s natural to want to upgrade and improve it as you can. But with all the economic uncertainty these days, who wants to pull $20,000 or $30,000 from savings to fund a rehab project?

A better idea might be to do a cash-out refinance of your first mortgage. This means you replace your home loan with another, lower-rate mortgage and pull out some of your home’s equity to make home improvements.

Depending on your situation, you may be able to refinance your loan for 1% less and pull out $25,000 to upgrade your kitchen, which is one of the best uses of your money for reselling your home, according to Homelight.com.

Rules & Guidelines on Minnesota Cash-Out Refinance

You need to qualify for a new loan to do a cash-out refinance in Minnesota. Expect to need at least a 640 or 680 credit score, depending on your Minnesota lender. Also, try to bump up your score to 700 or higher by paying down debt. Better rates also go to Minnesotans with a debt-to-income ratio of 36% or better. This means comparing your total monthly debt payments to your total gross income is no more than 36%.

Also, it is necessary to have at least 20% equity in your home to pull out cash and refinance. You are not permitted to take out in excess of 80% of your home’s value.

Considerations with a Minnesota Cash-Out Refinance

Home prices have been rising in Minnesota, and rates are near record-lows. So you could really get a good deal with a cash-out refinance right now. But it’s smart to keep these factors in mind:

  • The average home in the state sells for $300,000 to $400,000. You can expect to pay closing costs of $3,621. Many borrowers wrap those costs into the loan, but it is an expense to bear in mind. It is smart to stay in the home at least as long as it takes to ‘break-even’ on what you save with a lower rate compared to your closing costs. Otherwise, you are losing money on the refi.
  • If you are taking equity out of your home to pay off credit card debt, you can save 20% on interest payments. But you are risking your house if you cannot make the payments. Some experts question adding debt onto your home to pay off higher-interest debt.
  • If your current interest rate is under 4%, take a close look at the new rate you can get. If you cannot save at least .5%, consider a second mortgage such as a home equity loan instead. Keep your low first mortgage rate and get your equity with a fixed, low-rate home equity loan.
  • Getting a new home loan means you are starting the 30 years all over again. Probably not a good move if you are 10 years from paying off your loan. See if you can swing the higher payments with a 15-year mortgage instead.

Final Thoughts on a Minnesota Cash-Out Refinance Rules and Guidelines

As of April 15, 2020, rates for a 30-year fixed-rate mortgage were about 3.3%. The COVID-19 pandemic has brought much of the US economy to a grinding halt and rates are low. But the economic turmoil can be a boon for people with rising home values so they can tap their equity and score a lower interest rate. This low-rate environment is temporary as the economy may pick up in the second half of the year, so consider acting now.

Minnesota Cash-Out Refinance News

  • Thanks to Low Mortgage Rates, Home Prices On the Rise in Minnesota: Thanks to low-interest rates in 2019 and 2020, home values have been rising for single-family homes by 4.97% from a year ago. Current median home values in Minnesota are $238,800. (Moneywise.com)
  • Hot Twin Cities Housing Market Cools Off, Except for Entry-Level Homes: The COVID-19 pandemic has put a chill on property sales in the region for March and April 2020. Homes priced from $250,000 to $350,000 were flat compared to earlier weeks. But some homeowners are still electing to do a cash-out refinance on their mortgages to take advantage of low-interest rates. (Startribune.com)
  • Housing Industry Faces Possible Lost Year As Coronavirus Slows Building and Buying: The building of homes in much of Minnesota is being slowed as materials are slow to arrive and there is much uncertainty about who is going to be able to qualify for home loans and when. People in current homes, however, can take advantage of low rates and refinance. (Twincities.com)

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)

Louisiana Cash-Out Refinance Rules & Guidelines

Louisiana home prices have been rising at 2.4% annually, according to Zillow.com. With rising prices and low-interest rates during the COVID-19 pandemic, a lot of homeowners are wondering if now is the time to do a cash-out refinance.

Getting a new mortgage now could set you up with a low-interest rate and put cash in your pocket to do the home renovations you have been dreaming of for ages. It is also worth considering during your refi because it is uncertain what the current economic situation is going to do to home prices in the near future.

Ready to take advantage of the equity in your home? Below is more information about doing a Louisiana cash-out refinance.

Louisiana Cash-Out Refinance Overview

Zillow reports the median home price in Louisiana is $170,388. For most Louisianians, their home is the biggest investment of their lives. To increase the value of that investment, renovating and upgrading the property is a smart idea when you can afford it. But doing a home renovation can cost $10,000, $20,000, or more. Instead of running up credit cards with a 20% interest rate, homeowners often pull cash out of their home with a low-interest rate.

A cash-out refinance replaces your first mortgage with another with a bigger mortgage balance. You take the amount over your original balance and put it in your pocket. That is the equity that you can use to fund your home improvement project.

For example, if you want to fix up your kitchen with new cabinets, flooring, and appliances, you can easily spend $20,000. If you owe $75,000 on a $175,000 mortgage, you may be about to do a cash-out refinance for $95,000. You can take that $20,000 and remodel your kitchen to modern standards. Depending on the rate you get, your payment may not even change that much.

Rules & Guidelines on Louisana Cash-Out Refinance

Like in any state, you need to qualify for a cash-out refinance in Lousiana. Most qualified homeowners need at least a 640 to 680 credit score. You will get the best interest rates if your credit score is over 700. Also, better rates go to Louisianians with debt-to-income ratios of about 36%.

You also need to have 20% equity in your home to qualify for a cash-out refinance. Homeowners may not take out more than 80% of their home’s value, either. If you meet all of these rules, you may be able to get a cash-out refinance loan in Louisiana.

Considerations With a Louisiana Cash-Out Refinance

With rising home values (for now) and low-interest rates, getting a cash-out refi in Louisana sounds like a great deal! It is, but it is wise to keep these considerations in mind so you know all sides of the issue:

  • Be ready to pay closing costs. The average closing costs in Louisiana are $3,407. This matters because you have to pay closing costs on any new home loan. You might consider rolling the costs into the loan or paying a slightly higher rate. But the best option to save you the most money is to pay them at the closing table.
  • If you are pulling cash out of your home to pay off debt, that can make sense. But remember you are putting your house on the line when you do that. Also, you cannot tax deduct the mortgage interest on the new loan if you do not use the cash for home improvements.
  • Have a rate around 3.5% right now? You might be better off with a second mortgage, such as a home equity loan. Keep your low-interest first mortgage and pull out cash with a low-interest home equity loan instead.
  • Taking out a new mortgage means you are restarting the payment clock again. If you paid 15 years into your mortgage, do you really want a new 30-year mortgage? Consider a 15-year or 20-year mortgage so you can pay off your loan faster and save thousands in interest costs.

Final Thoughts on Louisiana Cash-Out Refinance Rules and Guidelines

As of April 15, 2020, rates for a 30-year fixed-rate mortgage were about 3.3%. The economic slowdown has led to a slide in mortgage rates that could be a great deal for Louisiana homeowners who want to lower their payment and pull out cash. If you can qualify, you might want to get a cash-out refinance now while rates are low and home values have not yet dropped significantly.

Louisiana Cash-Out Refinance News

  • Effects of Coronavirus on Louisiana Home Market Likely to Be Felt Soon:As of March 2020, the real estate market in Lousiana, especially in Lafayette and Acadiana, was still strong. Buying activity was still stronger in March 2020 than it was a year ago. This means it might be a good time to refinance and pull out cash before prices begin to drop. (Theadvertiser.com)
  • Home Values Heating Up in Louisiana: As of the end of 2019, home prices in Louisiana were rising about 1% year with a median price of $147,000. Many homeowners were taking advantage of the solid price increases to refinance and get cash. This trend is continuing now during the COVID-19 pandemic because rates are so low and prices have not cratered – yet. (Moneywise.com)
  • Some Mortgage Lenders Are Expanding Operations During COVID-19: Several mortgage lenders are expanding operations during the pandemic to handle the influx of cash-out refinance applications. This is occurring in hot markets such as Baton Rouge and Shreveport, Louisiana, as well as in several cities in Georgia and Massachusetts. (Housingwire.com)

Massachusetts Cash-Out Refinance Rules & Guidelines

Home prices in Massachusetts rose 3.3% from a year ago, according to Zillow.com, to an average value of $433,800. If you own a home in Massachusetts and have been thinking about a cash-out refinance, now could be the ideal time to get it done.

Even better, interest rates for 30-year mortgages fell again this week to just 3.31%.

Between rising home prices and low-interest rates, doing a cash-out refinance could lower your interest rate and put tens of thousands of dollars of equity in your pocket. Could there be a better time to save on your mortgage and put cash in the bank, given the economic slowdown from the coronavirus pandemic?

Below is critical information to know about doing a cash-out refinance in Massachusetts.

Massachusetts Cash-Out Refinance Overview

Having a home in Massachusetts is a huge investment, with the median home price tipping the scales at more than $400,000. When you spend that much money on a home, it makes sense to want to upgrade it to make it more comfortable and to increase its value.

But home improvements are expensive. For example, one of the most popular home renovation projects is a kitchen makeover, which can cost between $14,000 and $40,000, according to Homeadvisor.com. That’s a lot of money. How will you pay for it?

Many Massachusetts residents have a lot of equity in their homes and interest rates are low, so a cash-out refinance can be the perfect way to lower your rate and get the cash for your kitchen remodel.

For example, say you want to do a full-blown kitchen upgrade that features new cabinets, tile floor, granite counters, lights, and appliances for $35,000. If you owe $200,000 on a $400,000 mortgage, you may be able to refinance it for $235,000 and take the cash to remodel your kitchen.

Rules & Guidelines on Massachusetts Cash-Out Refinance

You will need to qualify for your new mortgage and follow the regulations that apply to mortgage loans in Massachusetts. Expect to need a credit score in the mid-600s to qualify for a new loan, and your debt-to-income ratio should be well below 50%. You will only get the best interest rates if your credit score is well over 700.

The laws in Massachusetts require a minimum of 20% equity in your home and you cannot borrow more than 80% of your home’s value. State law requires the borrower to keep at least 20% equity in the home to prevent borrowers from overextending themselves.

Considerations With a Massachusetts Cash-Out Refinance

Pulling out equity when the value of your home is rising and with low-interest rates is usually a great deal. But as with any major financial decision, be sure to consider all aspects before making the final call to refinance:

  • Refinancing for cash out may not be the right move if you already have an interest rate that is well below 4%. Instead, consider a home equity loan, which is a second mortgage with a fixed rate.
  • Have you been paying on your mortgage for a long time? Refinancing for 30 years restarts your mortgage clock, so you might want to choose a 15-year or 20-year mortgage. The payments are higher, but you’ll pay off your loan faster and save tons in interest payments.
  • Are you using the cash for a good purpose? Most financial advisors recommend using equity for a purpose that pays you back. The most popular use of equity is a home remodel. Good choices for remodels that will pay you back when you sell are kitchen and bathroom upgrades.
  • Do you plan to move in a year or two? Keep in mind that the average closing costs in Massachusetts are $3,871. It’s smart to stay in the home long enough that your annual interest savings are greater than your closing costs.
  • You won’t qualify for the lowest interest rates unless you have a high credit score in the 700s. Try to pay down debt and make all payments on time in a year or so before you refinance.

Final Thoughts on Massachusetts Cash-Out Refinance Rules & Guidelines

Home prices in Massachusetts continue to rise, and homeowners usually have plenty of equity to tap. Interest rates are at record lows as of April 2020, so a cash-out refinance looks like a no brainer for many people. Ensure your credit score is high enough for the best rates, then talk to a mortgage lender today about refinancing.

Massachusetts Cash-Out Mortgage News

  • The US 30-Year Mortgage Rate Has Fallen Again: US long-term mortgage interest rates have fallen again for the third straight week as there is new evidence of severe damage to the US economy from the COVID-19 pandemic. Rates for a 30-year fixed-rate mortgage is now 3.31%. This does present a good opportunity for Massachusetts families to refinance their loans, however. (Realestate.Boston.com)
  • Why Isn’t Boston’s Housing Market Slowing Down? While the coronavirus has put millions of people out of work and has damaged the US economy, people are still able to buy real estate in Boston, in part because of the low-interest rates. It is possible now to buy a home or townhouse you could not afford a year ago with rates a point higher. Mortgage refinances also are soaring in the city. (Bostonmagazine.com)
  • Massachusetts Home Prices Up as Winter Eases, New Figures Show: Massachusetts home prices continue to rise at an average rate of 4.2%, even as the COVID-19 pandemic has slowed the economy overall. Many people in the state are rushing to refinance their mortgages and get cash out as home prices are holding steady and mortgage rates are dropping. (Boston.Curbed.com)

New Jersey Cash-Out Refinance Rules & Guidelines

Home prices in New Jersey have been rising for years; the year-over-year increase this year is a solid 2.2% for a median home value of $342,000. However, there are signs that real estate values could drop by up to 12% in New Jersey as the COVID-19 virus hits the real estate market.

If you have been considering a cash-out refinance to get a lower interest rate and tap your home equity, you may want to consider turning in your application before real estate values plunge.

Below is more information about the cash-out refinance process in New Jersey.

New Jersey Cash-Out Refinance Overview

When you buy a house in New Jersey, you spend well over $300,000 at least. Most New Jersians want to upgrade their homes as they can afford it to increase the price of their most important investment. But home remodels can cost tens of thousands of dollars, so where do you get the cash? Credit cards and personal loans have high-interest rates. But your home can be a low-interest source of cash with a cash-out refinance.

A cash-out refinance replaces your current home loan with a new one that has a higher mortgage balance. You can pull out thousands of dollars of equity and make your home more livable and boost its value at the same time.

Let’s say you want to remodel your kitchen for $30,000. If you owe $200,000 on your $400,000 mortgage, you may be able to refinance for $235,000 and take the $35,000 in cash. Depending on current interest rates, you may end up even dropping your payment at the same time.

Rules & Guidelines on New Jersey Cash-Out Refinance

Like any home loan, there are restrictions on who can be approved for a cash-out refinance in New Jersey. You will need to have a credit score of at least 640 or so, and the best interest rates are reserved for applicants with FICO scores in the 700s. You also will need debt-to-income ratios of well below 50%, with some mortgage companies requiring under 36% for the best rates.

Like most states, you should have at least 20% equity in your New Jersey home to qualify for a refinance. And you cannot take out any loan for more than 80% of your home’s current, appraised value. If you meet these standards, you may qualify for a low-interest, cash-out refinance.

Considerations With a New Jersey Cash-Out Refinance

Taking out equity from your home with rising home values and low-interest rates is an attractive proposition. But you should consider the following factors before doing your new loan:

  • Closing costs. The average closing costs in New Jersey for a new home loan are between $2,899 and $51,54 for homes worth $300,000 to $400,000. Bear these costs in mind before you sign on the dotted line. It is wise to stay in the home for at least as long as it takes you to break even on the interest you save each month and your closing costs.
  • You only can write off the interest on your cash-out refinance if you are using the equity to make ‘substantial improvements’ to your home. Paying off your credit cards? Fine, but you can’t tax deduct the mortgage interest in that case.
  • If you have an interest rate below 4% right now, you may want to keep your first mortgage and opt for a home equity loan or home equity line of credit instead (HELOC). These are second mortgages that access your home equity but do not disturb your first mortgage. Rates on second mortgages are higher because lenders are second in line for reimbursement if you default.
  • If you use your cash-out refi money to pay off credit cards, you can significantly raise your credit score. This means your credit utilization goes down a lot, which makes credit bureaus smile.
  • If you take out a new 30-year mortgage, you are restarting the mortgage clock. This may not be a wise move if you have been paying on your home loan for 15 or 20 years. Consider refinancing into a shorter-term, lower-rate 15-year mortgage, instead.

Final Thoughts on New Jersey Cash-Out Refinance Rules & Guidelines

Home prices in New Jersey have been rising and interest rates are crashing to record lows. But home values could drop soon in the state as the COVID-19 pandemic reduces buying and selling activity. If you have been mulling a cash-out refinance, consider submitting your application today.

New Jersey Cash-Out Refinance News

  • Coronavirus Complicates Home Buying and Mortgage Refinancing: While interest rates on mortgages are at record lows in New Jersey, COVID-19 has snarled the refinance process as thousands of applications are backlogged and title searches and deed filings are happening much more slowly. (NYTimes.com)
  • Mortgage Rates Are At a 3-Year Low – Is Now a Good Time To Refinance Your Home?: Refinancing your home with cash out is a big deal in New Jersey. After years of rising rates, the COVID-19 pandemic has led to a plunge in mortgage rates below 4%. Now could be a great time to get the low rate and cash you need. (NJ.com).
  • Home Prices in New Jersey Head for 12% Drop: Home sales in New Jersey are expected to drop as much as 45% in 2020 from last year, and prices could plunge by 12%, so if you have been on the fence about refinancing, do it now before it is too late. (Crainsnewyork.com)

Arizona Cash-Out Refinance Rules & Guidelines

Home prices have risen dramatically in Arizona since a year ago – an average increase of 7.5%, according to Zillow.com, making Arizona a ‘very hot’ market by the real estate website’s standards.

Because interest rates are low during the COVID-19 pandemic and Arizona home prices are still rising, you could benefit by doing your cash-out refinance. Below is more information to know about cash-out refinances in Arizona.

Arizona Cash-Out Refinance Overview

Are you thinking about taking advantage of rising home prices and low-interest rates in Arizona to do a cash-out refinance? Refinancing and taking cash out has a lot going for it.

The biggest advantage of a cash-out refinance is it can lower your interest rate and give you the money you want to improve your home.

For example, if you refinance your mortgage for more than what you owe, you can take out thousands of equity to remodel your kitchen or add a family room extension. These popular home upgrades make your home more enjoyable and add value to the property.

Plus, if you use your equity to improve your home, the interest you pay is tax-deductible. Projects the IRS specifically mentions include:

  • Building an addition to your home
  • Replacing the roof
  • Replacing the HVAC system
  • Remodel the kitchen or bathroom

Rules & Guidelines on Arizona Cash-Out Refinance

Cash-out refinances are more popular in Arizona today because of rising home values and low-interest rates. Arizona was hit hard by the US housing crisis in 2008.

That is why the US government created special mortgage programs for Arizona borrowers, such as HARP, HAMP, and Save Our Home Arizona Program.

To qualify for a cash-out refinance in Arizona, you need to have a balance on your mortgage of less than 80% of the current appraised value. For instance, if you have a mortgage balance of $200,000 and your home is worth $300,000, you have a loan to value of 66%. You may be able to pull out up to $40,000 in equity if you qualify.

Also required are a decent credit score in the mid-600s to mid-700s and a debt-to-income ratio of approximately 45%, depending on the Arizona lender.

Considerations With an Arizona Cash-Out Refinance

Getting a lower interest rate and pulling out equity from your Arizona home sounds great, right? It is, but keep in mind these considerations before you send in your application:

  • Closing costs: Every new loan requires closing costs. In Arizona, closing costs typically are 1.16% to 1.74% of the home’s value. That adds up to $3,474, on average. You might consider rolling the closing costs into the loan or paying a slightly higher interest rate over the loan’s term. But one way or another, closing costs are always paid by the borrower. Make sure the savings that you get from the lower interest rate are worth the cost of the new loan.
  • You are restarting your mortgage. If you have paid 20 years on a 30-year mortgage and take out a new 30-year loan, you are paying on the home for 50 years. But you can nix this problem by refinancing into a 10 or 15-year mortgage. The payments are much higher, but you will save tens of thousands in interest, and pay off your home much faster.
  • You already have a low-interest rate. You still can do a cash-out refinance if you already have a low-interest rate, but why do that? The other option is to take out a home equity loan. This is a second mortgage on your home with a fixed interest rate. You can keep your low rate on your first mortgage and still get the cash you want for your home upgrades. Rates on second mortgages are a bit higher because they are a higher risk to lenders.
  • Improve your credit score before you apply. Interest rates may be at rock-bottom, COVID-19 lows, but you may not qualify with a 640 credit score. Pay off debt to increase your score quickly, if you can.

Final Thoughts on Arizona Cash-Out Refinance Rules & Guidelines

Home prices are rising quickly in Arizona and you will rarely see interest rates lower. You could be at just the right time to do a cash-out refinance. If you have a solid credit score, at least 20% equity, and intend to stay in the home for at least a few years, talk to your Arizona mortgage lender today about a cash-out refi.

Arizona Cash-Out Mortgage News

  • Refinancing on the Rise in Tuscon as Homeowners Scramble to Survive COVID-19 Outbreak: Interest rates are at historic lows and Tuscon home values are increasing, so many nervous homeowners are looking to refinance their mortgages to get money in their hands quickly. (Tucson.com)
  • Mortgage Refinance Could Save Money – Even If Your Loan Is New: Thousands of homeowners in Arizona could benefit today by refinancing their mortgages for cash out, even if they bought as recently as May 2019. (Tucson.com)
  • Coronavirus May Clobber Overvalued Housing Markets: It is estimated that homes in the US are 1.5% overvalued as of the end of 2019. In Arizona, it is believed homes are overvalued by 10-14%, so refinancing your mortgage for cash out as soon as you can is probably smart. (Eastbaytimes.com)

South Carolina Cash-Out Refinance Rules & Guidelines

Are you considering a cash-out refinance on your South Carolina home? Interest rates are well below 4%, with the pandemic going on. Plus, Zillow reports home prices have risen by a solid 3.9% in the last year, with the real estate website ranking the South Carolina market as ‘hot.’

Housing prices in the Palmetto State are still rising, and interest rates are low. But things could change as the economic slowdown takes hold across the state and country. Now might be the best time to do your cash-out refinance before financial conditions worsen.

South Carolina Cash-Out Refinance Overview

When you buy a home in Charleston, Columbia, Myrtle Beach, or elsewhere in South Carolina, you are making a big investment. Many homeowners want to put money into their homes every few years to improve it and boost its value. If you want to add a bathroom or put an extension in the family room, where you are going to get the money?

Many South Carolinians are taking equity out of their homes with a cash-out refinance today. They may get a lower interest rate on their mortgage and the cash they need to improve their home. Home renovations make the home more enjoyable for you and your loved ones, plus it adds value that can pay you back when you sell.

For instance, Homeguide reports adding a 20×20 family room costs about $48,000 on average. If you owe $200,000 on your home and have a $300,000 mortgage, you may be able to refinance it for $250,000 and take the rest in cash for your family room extension.

Rules & Guidelines on South Carolina Cash-Out Refinance

Your mortgage lender will require you to make an application and prove that you can afford the new, higher payments. Most lenders require at least a 620 credit score but 700 or higher will get you the lowest interest rates. Make sure your debt-to-income ratio is below 50%, too. Some lenders may require a lower DTI, so check with your South Carolina lender.

Additionally, you need at least 20% equity in your property to do a cash-out refinance. Note that you are not allowed to borrow more than 80% of your property value in South Carolina, so you can only take out so much equity.

Considerations With a South Carolina Cash-Out Refinance

Before you do your cash-out refinance in South Carolina, keep the following points in mind:

  • Closing costs: The average home in South Carolina costs between $200,000 and $300,000. Closing costs average about 1.17% of the sales price, so your closing costs could be between $1600 and $2400. Before you close on your loan, be sure that you will live in the home for 3-4 years so that you save more in interest on your lower rate than your closing costs.
  • Interest rates vary. Sure, interest rates during the pandemic are low, but they swing up and down. Even if you find a 30-year fixed rate at 3.3%, you may not qualify unless you have a top credit score and little debt.
  • New appraisal: Your lender will ask for a new appraisal at your cost to check what your home is worth in today’s real estate market. The average home appraisal in South Carolina costs $343.
  • Adding home improvements can increase your home’s value, but you also are taking on more mortgage debt. Be certain you can swing the higher payments or you could lose your home.
  • If you add square footage to your home with a family room extension, you will increase the value of your home. How much depends on many factors, but a $48,000 20×20 family room extension could add $15,000 to the value of your home.

Final Thoughts on South Carolina Cash-Out Refinance Rules & Guidelines

Home prices are still on the rise in South Carolina for now, and interest rates are low. Refinancing and pulling cash out is tempting.

But the real estate and mortgage market are volatile during the pandemic. Things might change quickly. It is a good idea to get your cash-out refinance going as soon as you can before interest rates climb or the value of your home drops. There also are reported backlogs of applicants waiting to refinance their mortgages, so getting going sooner than later may be the thing to do.

South Carolina Cash-Out Mortgage News

  • Home Interest Rates Drop to Historic Lows in South Carolina During Pandemic: If you are thinking about buying a home or refinancing a home in South Carolina, now is the time to do it, experts in the state say. One South Carolina credit union reports it has not seen interest rates this low in 15 years. (Live5News.com)
  • Buying or Refinancing? The Mortgage Rate Frenzy Is Back: Mortgage rates are near historic lows under 4% during the COVID-19 pandemic, making it a great time to refinance. States with the most refinancing activity this year are South Carolina, Texas, California and Illinois. (Reuters.com)
  • Will the Coronavirus Crash the Housing Market? If you are thinking about refinancing in South Carolina, you should be aware that the current pandemic could cause housing prices to dip. While home prices have not dropped yet, the number of houses going up for sale dropped dramatically in March 2020. South Carolina has some of the most at-risk counties in the country for a drop in housing prices. (Fitsnews.com)

North Carolina Cash-Out Refinance Rules & Guidelines

Should you do a cash-out refinance in North Carolina? Well, interest rates are near all-time lows with the COVID-19 pandemic, and homes have been appreciating quickly in North Carolina. Zillow reports prices rose an impressive 5.1% in the last year, and the website terms the North Carolina market as ‘very hot.’

With rising home prices and low-interest rates, now might be the time to do your cash-out refinance in North Carolina. Below is vital information to know before you take the plunge.

North Carolina Cash-Out Refinance Overview

If you have a home in North Carolina, you know what a big investment it is. Most people want to regularly upgrade the home to make it more pleasant to live in and to increase its value. But what if you want to put in new kitchen countertops, cabinets, and flooring and don’t have the cash in your savings account?

Many North Carolinians are doing a cash-out refinance to get a lower interest rate and pull out some of their equity as cash in their pocket.

For example, say you want to transform that 1970s-era kitchen into a contemporary masterpiece. But you need $35,000 to do it. If you owe $150,000 on your home loan and have a $300,000 mortgage, you can refinance for $185,000. Take that $35,000 in cash and create your dream kitchen.

Rules & Guidelines on North Carolina Cash-Out Refinance

Of course, you have to qualify for your new, higher mortgage. Your credit score and debt-to-income ratio (DTI) need to be acceptable to your lender to be approved. You need at least a 620 credit score to qualify for a cash-out refinance from most North Carolina lenders. But for the best rates, aim for a 700 FICO score and a DTI well under 50%.

Also, you need a minimum of 20% equity in North Carolina to qualify for a refinance. But you cannot borrow more than 80% of the home’s value in this state, so there are strict limits on how much you can take out.

Considerations With a North Carolina Cash-Out Refinance

Before you decide on a cash-out refinance for your North Carolina home, consider the following points:

  • You have to pay closing costs. Everything comes with a price, right? Taking out a new mortgage is no exception. You have to pay for appraisal fees, credit report fees, and attorney fees. The average closing costs in the state are $2,367. You should make certain you are going to stay in your home long enough to ‘break-even’ on the refinance, meaning your monthly savings should be more than what you paid in closing costs.
  • Your interest rate will vary: True, rates during the COVID-19 have been low, but a lot depends on your credit score and debt-to-income ratio. Try to have all on-time payments on your credit report for a year, and pay off as much debt as you can to increase your score.
  • You have to pay for a new appraisal: Any time you do a cash-out refinance, you need a new appraisal so the lender knows what your house is worth. You can expect to pay an average of $325 for a North Carolina appraisal.
  • You are taking on more debt, so you are putting your house on the line if you cannot pay the new mortgage. But if you are using the equity to improve your home, you can come out on the plus side by increasing your property value.
  • On the plus side, a kitchen remodel is one of the most popular upgrades you can do in your home. When it comes time to sell, it will make your North Carolina home more marketable. If you spend $35,000 on a kitchen upgrade, you can expect to add about $20,000 in value to your home. Other upgrades that add plenty of value are a bathroom upgrade, new wood flooring, add a new bathroom and HVAC replacement.

Final Thoughts on North Carolina Cash-Out Refinance Rules & Guidelines

With home prices rising in North Carolina and interest rates falling, you could be in a great position to do a cash-out refinance today. If your credit is good and you plan to live in your home awhile, you may get a lower rate and pull out the cash you want for those home improvements you have wanted to do for years.

North Carolina Cash-Out Mortgage News

  • These Cities Are Seeing the Highest Growth in Mortgage Refinance Applications: Applications to refinance mortgages have tripled from a year ago in the 50 largest US cities, and Raliegh, North Carolina is one of the cities seeing the most growth in refi applications, with a 406% increase from a year ago. (Forbes.com)
  • Lending Tree Has Reported a 308% Year-Over-Year Increase in Mortgage Refinancing Applications in North Carolina: Many North Carolinians are jumping at the chance to refinance their mortgages, with Raliegh ranked second in the nation in applications and Charlotte seventh. (Journalnow.com)
  • The Average Mortgage Payment Is Declining – Here’s Why: Generally, mortgage payments are declining, and in North Carolina, the average payment is $1,437. Lower interest rates are spurring more cash-out refinances, so it is expected average mortgage payments will continue to drop in the US and in North Carolina specifically. (TheMortgageReports.com)

References

Home Values in North Carolina. Accessed at https://www.zillow.com/nc/home-values/

North Carolina Appraisal Costs. Accessed at https://appraisers.promatcher.com/cost/north-carolina.aspx

These Cities Are Seeing the Highest Growth in Refinance Applications. Accessed at https://www.forbes.com/sites/brendarichardson/2020/03/25/these-cities-are-seeing-the-highest-growth-in-refinance-applications/#737bf4bf3d6e

Trying to Close the Door on Coronavirus – Home Sellers Delay Open Houses. Accessed at https://www.journalnow.com/business/trying-to-close-the-door-on-coronavirus-home-sellers-delay-open-houses-because-of-pandemic/article_7b9e8b74-d6ec-598a-ac9d-223ab4327f27.html

Ohio Cash-Out Refinance Rules & Guidelines

The COVID-19 pandemic is bringing much economic uncertainty for many Ohioans, but there is a silver lining: low-interest rates. In March 2020, the Federal Reserve dropped interest rates to almost zero, snatched up $500 billion of Treasury securities and $200 billion of mortgage-backed securities.

These dramatic actions dropped mortgage rates. In some cases recently, it has been possible to snag a 2.5% rate on a 15-year mortgage, and 3.2% on a 30-year mortgage. That’s an incredible deal!

If you live in Ohio and have been considering a cash-out refinance, you might want to pull the trigger soon. Rates cannot get much lower and they won’t last forever.

For Ohioans who have equity in their homes, below is what you need to know about a cash-out refinance in this state.

Ohio Cash-Out Refinance Overview

Buying a home in Ohio may be the biggest investment of your life. If you have been paying your mortgage on time for a few years and have equity in the home, you may be ready for a cash-out refinance.

By refinancing the mortgage on your Ohio home, you may be able to lower your monthly mortgage payments by getting a lower interest rate. Also, you can pull out equity by taking out a larger home loan than the existing one. You can convert that equity into cash in your pocket.

A cash-out refinance is a popular idea for Ohioans who want to improve their homes but do not want to drain their savings account while doing it.

For example, remodeling your kitchen can cost $25,000 or more. If you qualify, you can refinance your mortgage at a lower rate and pull out cash to fund your home improvements. Done right, you might be able to increase the value of your home, too.

Let’s say you took out a first mortgage of $200,000 on your Columbus, Ohio, home and after 15 years, you have 100,000 left on the loan. If you want to pull out $50,000 of equity, you can refinance with a new loan of $150,000. The new loan includes the $100,000 balance and the $50,000 in cash you want.

By looking at your home’s current loan-to-value ratio (LTV), your lender will determine a maximum loan amount for your cash-out refi. The lender studies the market value of the property today compared to the balance owed on the current mortgage.

If the current value of the home is $250,000 and your lender has a maximum LTV of 80%, the maximum cash-out refinance amount is $100,000.

Rules & Guidelines on Ohio Cash-Out Refinance

Lenders in Ohio only allow you to do a cash-out refi for up to 80% of the home’s value. FHA used to allow 85% LTV, but the current limit is 80%. Also, you will need to have paid your loan on time for at least six to 12 months before you refinance.

Considerations With an Ohio Cash-Out Refinance

Doing a cash-out refinance in Ohio in the current climate can be a solid financial move because of the low-interest rates. Here are some considerations before you call your mortgage broker:

  • When you refinance your mortgage, you are restarting the mortgage clock. If you had a 30-year fixed mortgage and paid for 10 years, you are starting over with another 30-year mortgage. A smart move to avoid this is to get a 15-year mortgage if you can handle the higher payments.
  • Cash-out refinance rates are higher than rates for simple refinances. This is because the lender is taking on more risk when you pull out cash.
  • Your rate will depend on your credit score and debt-to-income ratios. You may not be able to qualify for the lowest rates.
  • Many financial experts recommend refinancing if you can save approximately 1% on your mortgage.

Final Thoughts on an Ohio Cash-Out Refinance Rules & Guidelines

A cash-out refinance on your Ohio home could be a great deal in the current financial environment. Ohio homes have been appreciating in recent years, and the low-interest rates in the COVID-19 pandemic mean you could save a bundle in interest by refinancing.

If you decide to refinance, make sure that you plan to stay in your home long enough to ‘break-even’ on the deal. Your new home loan will come with a few thousand dollars of closing costs. So you should stay in the home long enough so that the savings on your new rate is at least as much as you paid in closing costs.

Ohio Cash-Out Mortgage News

  • Shelter from the Storm: Mortgage Refinancing Rises in Coronavirus Crisis: Mortgage refinancing in Ohio is on the rise in 2020. Lower interest rates drive most refinances, but homeowners in Ohio may be looking to get cash out of their homes to get through the coronavirus crisis. But people who have been laid off are unlikely to qualify for a cash-out refinance. (Dispatch.com)
  • States That Are Missing Out on the Refinancing Boom: In 2020, refinance applications in Ohio are up 212%. More Ohioans should consider a cash-out refinance with low-interest rates; the median home value in Ohio is $152,000, and typical monthly savings on a refinance at current rates is $91.20. (Moneywise.com)
  • There Is a Silver Lining to the Coronavirus: It’s a Good Time To Refinance Your Mortgage: The impact of the coronavirus has generally been positive, providing some solace to Ohioans who have been affected by the pandemic. On some days since early March, mortgage rates have been at record lows for Ohioans, with a 2.5% rate available on some 15-year mortgages. (ABC6Onyourside.com)

References

Cash-Out Refinance Overview. Accessed at https://www.investopedia.com/terms/c/cashout_refinance.asp

Shelter from Storm – Mortgage Refinancing Rises in Coronavirus Crisis. Accessed at https://www.dispatch.com/business/20200403/shelter-from-storm-mortgage-refinancing-rises-in-coronavirus-crisis

There’s a Silver Lining to the Coronavirus – It’s a Good Time to Refinance Your Mortgage. Accessed at https://abc6onyourside.com/on-your-side/theres-a-silver-lining-to-the-coronavirus-its-a-good-time-to-refinance-your-mortgage

States Missing Out on the Mortgage Refinance Boom. Accessed at https://moneywise.com/a/states-missing-out-on-the-mortgage-refinance-boom

Colorado Cash-Out Refinance Rules & Guidelines

Home values have been rising in Colorado recently, with home prices up 3.93% from a year ago. Across Colorado, the median home value stands at $380,800.

With mortgage refinance rates below 4%, Coloradans may want to take advantage and do a cash-out refinance to lower their interest rate and tap some of their home equity.

Interest rates have been dropping during the COVID-19 pandemic, and some lenders are swamped with refinance applications. Learn more below about cash-out refinances in Colorado below to see if now is the right time for you to refi.

Colorado Cash-Out Refinance Overview

Buying a house in Colorado has been shown to be a good investment over the years. The median home price in the state is currently close to $400,000, so plenty of homeowners are doing well with their primary investment.

To keep your property up in Colorado and increase its value, you may want to improve the kitchen or bathrooms, or perhaps add a family room extension and deck. Where are you going to get all that money?

If you do not want to tap your savings, a Colorado cash-out refinance could be for you. This type of loan involves taking out a larger mortgage compared to your original loan and taking the equity in cash. The difference between the new home loan and what is outstanding can be used for your home renovations, or for any purpose you see fit.

Cash-out refinancing is popular in Colorado as homeowners have been enjoying substantial price appreciation over the last 10 years. With a higher property value, you have more equity – as long as you make your loan payments on time.

Let’s look at this example. If you have $200,000 left on your mortgage and your home is worth $350,000, you might be able to refinance your home for $200,000, plus $60,000 for your home renovations. The mortgage could be refinanced with cash out for $260,000.

If you have a current interest rate in the 4’s, you really could benefit by refinancing and saving money. If you have a $260,000 mortgage at 4.65%, you pay $254,000 in interest over 30 years. That is reduced to $192,000 at 3.65%. That’s a huge difference!

Rules & Guidelines on Colorado Cash-Out Refinance

Does doing a cash-out refinance sound like a great idea? It often is, but you need to qualify for your new mortgage. Your credit score and debt to income ratios (DTI) must meet your lender’s requirements.

Depending on the lender and the program, you will need a minimum of a 620 credit score to refinance a home in Colorado. But homeowners with at least a 700 credit score are best.

Most Colorado mortgage companies like to see a DTI of 50% or less. The DTI ratio is your total monthly debt payments divided by your gross monthly income. So, if your total monthly bills are $1,500, and you have a gross income of $4,000, the debt to income ratio is 37.5%.

It also is required to have at least 20% equity in your home to do a refinance. Colorado rules allow you to borrow up to 80% of your home’s value.

Points to Consider With a Colorado Cash-Out Refinance

Before you decide to refinance your Colorado home, consider the following points:

  • Cash-out refinance rates are lower than a home equity loan. With a cash-out refinance, you are refinancing your first mortgage, not taking out a second such as a home equity loan. Rates on first mortgages are always lower, so you can save quite a bit.
  • You don’t need to sell to get your equity. Having equity in your Colorado home is great, but you can’t access it until you sell. But you can if you pull it out with a cash-out refinance. If you use the money effectively on remodeling, you can even make your house worth more.
  • Pay off credit card debt and raise your credit score. Maybe you want to do some home remodeling, but take that extra $10,000 and pay off those credit cards. Your credit score will rise substantially because mortgage debt is viewed as ‘better debt’ by the credit bureaus.
  • Mortgage interest is tax-deductible in some cases: When you pull out your equity, the interest you are charged is tax-deductible if it is used to improve your home.

Final Thoughts on Colorado Cash-Out Refinance Rules & Guidelines

Can you get a lower rate on your mortgage by 1% or so? Do you have at least 20% equity available? Are you planning to stay in your home for a few years? Take a look at the closing costs your lender proposes. See how long you would have to stay in the home to ‘break-even’ on the money you are saving at a lower rate.

If everything lines up and makes financial sense, you could be on your way to a lower interest rate…and getting cash in hand to make those home improvements you have dreamed of for years.

Colorado Cash-Out Mortgage News

  • Colorado Financial Expert Suggests Ways to Reduce Money Stress: As the COVID-19 crisis has caused damage to investors’ portfolios, some of the ways to mitigate some of the fallout are to refinance your mortgage and pull out cash, and switch credit card balances to a zero-interest card. (Denver.CBSLocal.com)
  • Where To Start If You’re Considering a Mortgage Refinance: As mortgage rates have fallen in Colorado since the coronavirus hit the nation in March, many are considering a cash-out refinance to get access to the capital they need. (Coloradan.com)
  • These Are The Cities Where Home Values Will Appreciate the Most This Year: For 2020, Denver is one of the top cities where home value appreciation is expected to be the highest, so now could be a good time to pull cash out and refinance a home in Colorado. (TheMortgageReports.com)

References

Where to Start If You Are Considering a Mortgage Refinance. Accessed at https://www.coloradoan.com/story/sponsor-story/elevations-credit-union/2020/03/12/where-start-if-youre-considering-mortgage-refinance/4976281002/

Homebuyers Take Note – These Are the Cities Where Home Values Will Appreciate the Most This Year. Accessed at https://themortgagereports.com/62377/homebuyers-take-note-these-are-the-cities-where-home-values-will-appreciate-the-most-this-year

Illinois Cash Out Refinance Rules & Guidelines

These are rough times for the US economy as the COVID-19 pandemic continues to spread across the United States. While there is hope because the rate of infections seems to be slowing, more and more Americans are out of work.

In Illinois, 178,421 workers filed for unemployment for the week of March 23. That number was more than ten times the number the week before.

While economic slowdowns are tough times for millions of Americans, it could be a good time to do that cash-out refinance you have been considering. Many people in Illinois are rushing to refinance before rates rise.

Fixed refinance rates are currently averaging in the 3.5% range. If you have equity in your Illinois home, you could get a lower rate and the cash you need with a cash-out refinance.

Below are some thoughts to consider about doing an Illinois cash-our refinance in 2020.

Illinois Cash-Out Refinance Overview

Buying your home in Illinois is a major investment. Most of us want to do what we can to keep our homes looking as nice as they can. But many people do not have enough savings to fund major rehab projects and repairs.

An Illinois-cash out refinance could be just what is required. A cash-out refi allows you to pull equity out of your home to fund home improvements, so you don’t need to get a high-interest personal loan. The refinance lets you pull out some of the cash you have paid into the property to cover essential repairs, remodel your kitchen, add a room extension, and more.

For instance, say you need $30,000 to turn that 1970s style kitchen into a modern marvel. But you owe $100,000 on your $300,000 mortgage. Rather than just refinancing and lowering the rate alone, you also can refinance the mortgage for $130,000 and use the $30,000 for that new, up-to-date kitchen.

Rules & Guidelines on Illinois Cash-Out Refinance

Like most states, you can only do one cash-out refinance per year. You also generally need to have at least six on-time mortgage payments before you can refinance.

Most Illinois lenders will only consider a cash-out refi for up to 80% of the property value. There are some FHA lenders that might do 85%, but these are harder to come by, especially as loan guidelines are getting tighter in the COVID-19 pandemic.

How Much Can You Save With an Illinois Cash-Out Refinance?

It generally is a wise move to refinance your mortgage if you can save about 1% on your interest rate. Some sources say if you can save .75% to 1% on your rate, it is worth doing.

Snagging that new, low rate can put some money in your pocket each month. You also increase the equity in your home faster. For example, say you have a $250,000 home loan at 6% with a  payment of $1499. If you can refinance it to 5% for 30 years, your monthly payment drops to $1342, a savings of $150 per month.

Other Options With an Illinois Cash-Out Refinance

If you are weary of mortgage debt, doing a cash-out refinance into a 15-year loan could be a great deal. You will pay off your Illinois home faster, and you will pay lower interest because shorter loans have lower rates. If you are considering a 15-year refinance, here are some things to think over:

  • Can you handle the payments? You will probably have a higher payment on a 15-year loan, even with the lower rate. With a $200,000 mortgage at 4% on a 30-year loan has a payment of $955 a month. That becomes $1,400 a month with a 3% interest rate on a 15-year.
  • Is saving on interest worth the bigger payment? You will be saving about $175 per month in interest on the above example in the first few years. You could put that money into an IRA and make more money in some cases.
  • Will you lose on tax breaks? 15-year mortgages have less interest so you may not be able to write off as much mortgage interest.

Final Thoughts on Illinois Cash-Out Refinance Rules & Guidelines

With the low-interest rates in today’s shaky economy, this could be the perfect time to do a cash-out refinance on your Illinois home. Also, consider that home values may begin to decline as the economy enters a recession. You may want to do the refinance now before values drop.

Your realtor can run comps for you and property analysis to see where you stand, so you know for sure if you should not put off that cash-out refinance.

Illinois Cash-Out Mortgage News

  • Illinois Offers Help to Those Struggling to Make Debt Payments:The Illinois Department of Financial and Professional Regulation is trying to help Illinois residents during the COVID-19 outbreak by offering lower rates on first and second mortgages; deferring payments on mortgages and waiving fees on late mortgage payments. (Newschannel20.com)
  • As Coronavirus Spreads, Will Mortgage Rates Stay Low: This is the question that many people who want to refinance are asking. A few weeks ago, the rate on a 30-year fixed-rate mortgage was 3.36%. But in some cases, the flurry to refinance with low mortgage rates has actually caused the rates to go up as higher demand spurred higher rates to slow things down. (ChicagoTribune.com)
  • ‘Wet’ Ink Signature Requirements May Fade After Coronavirus: The wet signature requirement on mortgage documents, including on mortgage refinances and second mortgages, may become a thing of the past as current social distancing practices make it more difficult to sign loans in person. Most states, including Illinois, have electronic signature laws. The next time you do purchase or cash-out refinance mortgage, it may all be done with electronic signatures. (Bloomberglaw.com)

References

Unemployment Claims March 23. Accessed at

Should You Join the Rush to Refinance Now? Accessed at https://www.washingtonpost.com/

Mortgage Rates Today April 13, 2020. Accessed at

Refinance 101. Accessed at

https://www.discover.com/home-loans/articles/refinance-101

3 Questions for Anyone Refinancing to a 15-Year Mortgage. Accessed at

https://smartasset.com/refinance/3-questions-for-anyone-refinancing-to-a-15-year-mortgage

Illinois Offers Help to Those Struggling to Make Debt Payments. Accessed at https://newschannel20.com/news/local/illinois-offers-help-to-those-struggling-to-make-debt-payments

Coronavirus Affects Mortgage Rates. Accessed at https://www.chicagotribune.com/coronavirus/sns-nyt-coronavirus-affect-mortgage-rates-20200318-az225rlkqndfrktzm3aekgb7gq-story.html

Wet Ink Signature Requirements May Fade After Coronavirus. Accessed at https://news.bloomberglaw.com/us-law-week/wet-ink-signatures-requirements-may-fade-after-coronavirus

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/

Pennsylvania Cash Out Refinance Rules & Guidelines

At least one million Pennsylvania residents have filed for unemployment benefits since the COVID-19 virus starting taking a heavy toll on the US economy. It is expected, however, that the economic recovery could begin this summer and accelerate in the fall.

While the economic slowdown is problematic on many fronts, mortgage rates have dropped significantly in recent weeks. For people who have equity in their homes and want to lower the rate on their first mortgage, now could be the time to save big, even with COVID-19 in the news.

If you have equity in your home in Pennsylvania, below is the information you need to know about a cash-out refinance.

Pennsylvania Cash-Out Refinance Overview

Buying a house in Pennsylvania could well be one of the largest investments you ever make. Most homeowners want to do what they can to keep the home as up to date as they can. But what if you do not have the savings you need to renovate your home and complete necessary repairs?

A cash-out refinance could be what you need. This loan product can help you complete your home improvements, so you don’t need to run up credit card debt or get a personal loan. A cash-out refi allows you to use the cash you have paid into your mortgage to fix up your home, cover repairs, or pay off credits and student loans.

Here’s how a Pennsylvania cash-out refinance can work: Assume you bought a home in Pittsburgh for $200,000, and you have made $50,000 in payments. This means you owe $150,000 on the loan. Now you want to make $20,000 of improvements to your kitchen.

With a cash-out refinance, you take out part of your equity and add what you take out onto your new loan. So, your new mortgage will be for $170,000 – the $150,000 you owed plus the $20,000 in equity you want for your kitchen remodel. Your mortgage lender gives you the $20,000 in cash after the new loan closes.

Rules & Guidelines on Pennsylvania Cash-Out Refinance

Regulations in Pennsylvania require your loan to have been paid on time for at least 12 months before you do a mortgage refinance.

Also, most lenders in the state will only do a cash-out refinance for up to 80% of the home’s value. You might find some lenders willing to do 85%, but they are harder to find. Some Pennsylvania banks may increase the LTV limit if the money is being used for home repairs.

How Much Can You Save With a Pennsylvania Cash-Out Refinance?

Most people only do a cash-out refinance of their first mortgage if they can save substantially on their interest rate. If you can save between .75% and 1% on your mortgage rate, it might be worth doing a cash-out refinance on your home.

Getting a lower rate on your new mortgage can save you big bucks every month. You also will grow equity more quickly over time. If you have a 30-year fixed-rate loan on your $100,000 home at 5.5%, you pay $570. If you can refinance it at 4%, you can save almost $100.

Cash-Out Refinance or Home Equity Loan?

What if you have a great rate on your Pennsylvania home’s mortgage? You may not want to refinance the loan because your new rate could be higher, even if you can pull out equity. What to do?

Experts say you might consider a home equity loan. A home equity loan is a second mortgage on your home. You take out the loan on top of the one you already have and pull out the available equity up to 80% of the home’s value.

A home equity loan offers a fixed rate that will be slightly higher than the rate on your first mortgage; the risk is higher for the lender on second mortgages. But it still can be a great way to get the cash you need without changing your first mortgage.

Final Thoughts on a Pennsylvania Cash-Out Refinance Rules & Guidelines

A cash-out refinance could make a lot of sense right now because interest rates are dropping with the COVID-19 pandemic. If you can save up to 1% on your home loan and have cash available, you can fix up your home, add value, and maybe save on your mortgage every month.

Pennsylvania Cash-Out Mortgage News

  • Pittsburgh Homes Are Still Selling, But At a Slower Pace Since Slowdown: Since the COVID-19 crisis hit in March, the Pittsburgh real estate market has slowed. Some homeowners are rushing to sell their homes, do a cash-out refinance, or home equity loan before prices drop significantly. (Post-Gazette.com)
  • Now Is a Good Time to Fill Up the Tank, Refinance The Mortgage: As the coronavirus has taken a heavy toll on the economy across Pennsylvania, there have been two bright spots: Gas is cheap, and low mortgage rates mean it could be a great time to do a cash-out refinance. (Citizensvoice.com)
  • Is It Time to Refi? Amid Lower Rates, Lenders Say Homeowners Are Jumping to Refinance: The Mortgage Company in Allentown, Pennsylvania has been busy this year making calls and sending out emails spreading the word about falling home mortgage rates. This could be a great time to refinance for cash out if you can save .75% to 1% on your interest rate. (Mcall.com)

References

What Are the Differences in a HELOC Loan and Cash-Out Refinance?

Your home where you live, but it is much more than that. It is an investment but also can be a source of cash if you want it. Mortgage rates have dropped a lot in March 2020 amid economic uncertainty. Many homeowners are rushing to pull equity out of their homes while rates are so low.

Does this apply to you? Well, if your home is worth more than what you owe on your home loan, you have equity in the property. If you aren’t sure, ask your realtor to run the latest comps in your neighborhood.

After eight years in a row of median home prices rising, you have a good shot of being one of the millions of homeowners with equity available. The real estate data analytics company Black Knight reports the average equity held in those homes is $120,000. (USAToday.com)

If you have equity, one thing you need to decide on is if you want to get a home equity line of credit (HELOC) or a cash-out refinance to tap your equity. It’s smart to understand the advantages and the disadvantages of each loan so you can choose the right financial option.

HELOC Overview

A home equity line of credit is a second mortgage on your property. It is similar to a line of credit you have on a credit card, but the loan is secured by your home. The rate is usually much less than personal loans and credit cards. But the lender may be able to take your home if you don’t pay the loan, so use caution.

With a HELOC, for a term of five or 10 years, you can borrow as much or as little on your approved credit line as you like. You could have to pay a fee each time you pull out cash, or an inactivity fee if you do not use it during a period.

During your draw period, you will pay interest only on what you have taken out. At the end of the draw period, your credit line closes and you start paying back the interest and principal.

A HELOC is called a second mortgage because you have taken another loan on the equity you have in the home. The HELOC is subordinate to your first mortgage. If you do not pay, the second lender is behind the first to collect proceeds during foreclosure. This is why HELOC rates are higher than for first mortgages: The lender is taking on higher risk.

A HELOC has an adjustable-rate after the draw period that is usually tied to the prime rate. If you are risk-averse, you may be more comfortable with a home equity line second mortgage with a fixed rate. Or, go with a cash-out refinance if you can lower your rate.

Cash-Out Refinance Overview

There are two options with a refinance – a rate and term refinance and a cash-out refinance. A rate and term refi only pay off the old loan with the funds from a new loan but at a lower rate.

The cash-out refinance does the same thing but also takes out a portion of your equity and puts it in your pocket. When the new loan closes, you have a new first mortgage and a check for cash.

Your closing costs will be 2% or 3% of the new loan amount. This can amount to several thousand dollars on many mortgages, so you should plan to stay in the house for a few years if you choose a cash-out refinance. (Investopedia.com)

Not planning to stay in your home for the long haul? A HELOC might be a better option because the closing costs are lower.

HELOC vs. Cash-Out Refinance Example

Say you bought your home in 2010 when rates were 5% on a 30-year fixed-rate mortgage. Now you can get a rate of just 3.5% on your new loan. That is a full 1.5% less, so you could reduce your mortgage payment by hundreds of dollars per month. The new loan also would cut the interest you pay over the life of the loan by tens of thousands.

If you are going to stay in your home for a few years, doing a cash-out refinance may be a good move.

But what if you already have a 3.5% rate on your first mortgage? You just want to pull out some cash to renovate your kitchen and add a new deck to the back of the home. You may be better off with a home equity line of credit.

Considerations

Your ability to get approved for a HELOC or a cash-out refi hinges on your credit score. If your FICO score is lower than when you bought the house, you may not want to refinance; your rate could end up higher than you have now. Talk to your mortgage lender about your possible rate if your score is not 740 or higher.

Final Thoughts on Differences in a HELOC Loan and Cash-Out Refinance

HELOCs and refis can be a boon to homeowners who want to pull out cash for things they want or need, especially when rates of low. To determine which loan is right for you, think about these factors:

  • How much equity you have
  • What you want to do with the money
  • Your current interest rate vs current market rates
  • How long you want to stay in the house
  • Your risk tolerance – a fixed-rate 30-year mortgage offers more stability, while a HELOC could have a low rate for a time that may increase in the future

References

Can I Refinance My Mortgage to Pay for College?

It’s fair to say that tuition and fees in higher education vary widely across academic institutions within the United States. It’s also fair to say that the price tag of a college education is a form of sticker shock most of us will never experience … until we buy a house.

According to Value Penguin, the average cost of college during the 2017-18 school year was $20,770 for in-state public schools, and almost $47,000 for private schools (including tuition, room and board, and other fees).

A year later, researchers at collegedata.com said the price tag had jumped to $26,590 and $53,980, respectively.

The data proves that costs each year continue to increase, without factoring in need-based aid, scholarships, and ways to reduce the total cost. It leaves many people wondering, “Can I refinance a mortgage to pay for my child’s education?” Nontraditional students (adults who go back to school) also look to cash-out refinancing to pay for their own schooling.

Cash-Out Refinance vs. Federal Student Loans

If you’ve been weighing a cash-out refinance against federal student loans, it’s something you should really do your homework on. That’s because making the decision on whether to borrow money to pay for college by taking equity of your house isn’t exactly cut and dried.

At the time this article was written, mortgage interest rates were nearing historic lows. According to Bankrate.com, the average 30-year fixed-rate mortgage was at 3.790%.

By comparison, Nerd Wallet says the federal student loan interest rate for undergrads was around 4.53% for the 2019-20 school year.

One sure seems better than the other, right?

But realistically, it’s like comparing apples to oranges.

That’s because refinancing your mortgage and starting a brand new 30-year term is a much longer repayment window than most student loans would take to pay off. For argument’s sake, a 50-year-old parent would be stretching out repayment on the mortgage loan until the age of 80. Experts say that’s a big no-no. In fact, parents are told they should never borrow more for a child’s college education than they can afford to repay in 10 years or by the time they’ve reached retirement.

At the same time, a lump sum of cash as a potential source of funding for college may be too good to pass up, especially as the cost of education keeps rising.

So, How Does a Cash-Out Refinance Work?

A cash-out refinance is the only type of home refinance that lets you walk away with money at the end of the deal.

In this type of transaction, you replace your existing mortgage loan with a brand new loan. That’s pretty typical of a refinance, right? Except, in this case, you’re swapping it for a larger amount than what you still owed on the property and you take the difference between the two loans in cash.

Zillow and many other websites offer easy-to-understand examples of this type of transaction: Let’s say you own a $320,000 home and you still owe $170,000 on the mortgage. That means you have at least $150,000 in equity built-up (or the amount of the home you actually own).  A cash-out refi leverages some of that equity and adds it to your new mortgage. So if you wanted to take $80,000 you could do a cash-out refinance to get the money. If you did, your new mortgage would be for $250,000 (or the $170,000 you still owed on the old mortgage, plus the money you’re taking out in cash).

What Should I Know Before Refinancing to Pay for College?

Experts agree that your home should really be looked at as your only real ‘store of wealth’ beyond savings accounts and investments. You should think long and hard about touching it for anything but the biggest financial hardships. In other words, plan accordingly if this is the road you’re going down.

Many people fail to consider everything rolled into a cash-out refinance, and don’t stop to think about having to pay closing costs. This can add thousands of dollars to the transaction if costs are rolled into the deal, or remove thousands of dollars from the lump sum you’re walking away with. Additionally, you’ll have to pay interest on the cash you’re taking out, which you may not worry about now but it all adds up.

You also need to keep in mind that some lenders may not give you the option to do a cash-out refinance based on your current financial situation. You will have to meet a minimum credit score requirement (which is typically higher than a regular refinance), have owned your home for a certain amount of time, and have a fairly high loan-to-value ratio on your property (for the uninitiated, the LTV compares the amount of the loan you’re requesting compared to the appraised value of the property. Typically, there’s a maximum LTV of around 85%).

If your child may be able to secure loans and financial assistance to pay for or help offset the cost of college, refinancing should not be something you’re seriously considering.  Even lenders will agree that many clients only see the benefit of increased cash flow and don’t look beyond it. The decision must be made with an understanding that what you decide affects your financial future. You may see it as the right answer and a big benefit today, but it can affect you long-term.

Final Thoughts on Refinancing to Pay for College

A hastily made decision to tap into your home equity could prove to be rather costly. It may cause future hardship you’re not currently anticipating. That’s why economic experts and mortgage lenders say you should create a plan that will address the options you have and weigh your finances for the years ahead. Even though mortgage rates are near all-time lows, is taking advantage of that now eliminating risk and increasing stability for your family? Is it part of helping bolster your finances for the future? All of this must be considered.

Finally, it’s imperative that you work closely and consult financial advisors and strategists who can help you figure out if refinancing to pay for college is the best option on the table. All the things that affect refinancing, such as the closing costs, will change how much cash you’re able to pull from the deal. As we also mentioned, there will be tax implications to consider later on.

The best course of action is to have a financial plan that can aid in guiding your decisions and offer a complete picture and full understanding of whether a cash-out refinance makes the most sense. If parents still find themselves in a position where they’d like to use the equity in their home to cover college costs, a home equity line of credit or a home equity loan might be better options.

References

Cash-Out Refinance for Emergency Fund

There are some of us whose personal finance practices are in solid shape. We have an emergency fund of at least 3 months’ expenses (if not more), and goals to save $1 daily or $10 weekly. We avoid high-cost debt, owe just a fraction of our monthly net income to bills, and hold both savings and investments.

Realistically, no one needs an expert to tell them that having some sort of savings buffer is just good old common sense. But for many Americans, this scenario is little more than an unattainable hope … a pipe dream. 

According to Bankrate’s Financial Security Index, nearly 3 in 10 adults across the country have no emergency savings. Only 1 in 4 said they have what would amount to a ‘rainy day fund’ but not enough to cover months’ worth of expenses.

If you’re one of those people who might be looking to solve a savings crisis and don’t know where to turn, the answer may be right over your head in the form of home equity.

What is a Cash-Out Refinance?

If you hold equity in your home — that’s to say the difference between the property value and what you still owe on it —  a cash-out refinance may be one of the best ways to borrow money.

It works like this: You decide to refinance your mortgage and take out a bigger (yes, we said bigger) mortgage, pocketing the difference in cash. So let’s pretend that your home is worth $375,000 and the current principal balance on your mortgage is only $215,000. That means you’re in excellent shape where equity is concerned. You can take $50,000 (which bumps your new mortgage to $265,000), walk away with that large sum of money after closing, and still maintain equity in your home.

Does this sound too good to be true? Well, it’s not. A cash-out refinance can be a surefire way to give yourself some breathing room when financial trouble strikes and can be the solution you’re looking for to start or maintain an emergency fund.

The Ins and Outs of Applying for a Cash-Out Refinance

Loan applicants shopping around for a deal need to understand something very important — it’s OK not to jump in with the first lender that says ‘yes’, but you’ll eventually have to go through the underwriting process with one of them. That means you need to focus on the whole application, starting with the appraisal of your home.

The New York Times suggests you prepare ‘income explainers’ and over-document everything you think a lender will be looking for. This can be everything from pay stubs to bank records, tax returns, and paid bills.

You should also check in with your lender to talk specifically about the home appraisal, and what kind of issues can result in a lowballing of your property value. Proof of remodeling, including before-and-after photos, receipts, and paperwork that shows specific work was done by a licensed contractor can go a long way for your appraisal, along with comps in your neighborhood.

Finally,  remember that lenders will typically check your credit report throughout the underwriting process.  Make sure you haven’t applied for a new credit card, auto loan or other borrowing until your application is approved.

Other Rules of Cash-Out Refinancing

Rocket Mortgage and many other lenders will remind you of various things to consider with a cash-out refinance. One of the most important is that conventional loans require you to leave a certain percentage (between 15-20%) of equity in your home after a refinance. FHA loans require at least 15% equity to remain, meaning you can’t max out the value of your home.

Additionally, there will be credit score requirements and lenders will scrutinize your debt-to-income ratio (DTI), or the total amount of your monthly debts weighed against your total monthly income. For example, if you pay $1,600 a month in bills and you have a total income of $3000, your DTI is about 53%. Many lenders will require that your DTI fall below a certain threshold in order to refinance your loan.

Benefits of a Cash-Out Refinance

Circling back to the need for an emergency fund highlights one of the reasons people consider and act on refinancing opportunities.

As U.S. News & World Report points out, one of the main benefits of a cash-out refinance is just that — the cash. Having it can immediately relieve stress on your budget.

By having an emergency fund, you can use the money for things like medical or dental bills. Many people also use it for veterinary expenses for their pets. In the event of job loss or interruption of income, having cash on hand becomes imperative for day-to-day necessities.

Beyond major expenses, some people split the cash out on a refinance and put some of it aside for other reasons. Many people use the money for:

– Consolidating debt by paying off high-interest credit cards.

– Funding major repairs or renovations at home.

– Paying off school loans

– Adding to existing investments or buying investment properties

Overall, experts say you should get in the habit of regularly saving money once an emergency fund is established. Additionally, if you are employed full-time and making contributions to a retirement plan at work, you should also take the initiative to put a portion of each paycheck into a high-yield savings account.

No matter what, achieving financial stability should be part of your endgame in applying for a cash-out refinance.

Final Takeaways On Cash-Out Refinancing For Emergency Funds

Financial stability is difficult for many Americans to achieve. More than 60% of respondents to a Prudential survey taken in late 2018 said they didn’t have enough savings to handle a $500 emergency.

Many more people need an easily accessible savings account, and it needs to be padded for unforeseen expenses. That alone can be the difference between a small financial hiccup that is easy to overcome and something that can derail you completely.

Refinancing your mortgage can offer big benefits, and a cash-out refinance is a means to an end with a big upside. But remember, everything comes back to what you really want to accomplish with your refi. A successful refinance in this situation would mean you’re accounted for your goals in the short and long term, establishing an emergency fund and utilizing cash out appropriately.

Noting the types of emergency expenses that befall many people, some experts even recommend having enough cash on hand to cover expenses for up to a year or more. Having a hearty emergency fund established from a cash-out refi can give you peace of mind now and in the future.

References

Cash-Out vs Conventional Refinance

What’s the public to do when the Federal National Mortgage Corporation, better known as Freddie Mac, announces rates for 30-year, fixed-rate conventional mortgages had fallen to their lowest level ever recorded? Or that the rate for a 15-year mortgage was at a point not seen in nearly three years?

The question for many homeowners in times like these is suddenly not if, but when to refinance.

Ultimately, it may come down to a choice of two completely different options: a conventional refinance or a cash-out refinance. Do you know the difference?

Why Do Borrowers Refinance?

Without question, refinancing a mortgage is one of the most important decisions a homeowner can make. Many do so after watching interest rates ebb and flow, dipping their toes into the water to see if an interest rate differential would open the window to the best time to refinance. Homeowners hope to accomplish all of this before interest rates change again, as a means to lock in the best rate possible.

It gets to a point where some borrowers chose the wrong rate, wait too long to refinance, or choose the wrong type of refinancing to fit their situation. These days, more resources are available to help make homeowners financially sophisticated borrowers, allowing them to refinance at optimal rates and understand how a cash-out refinance actually works.

What Is A Conventional Loan?

Simply put, a conventional loan is a type of loan that is not guaranteed or insured by a government agency or entity. Instead, private lenders (think banks and credit unions) back the loan and borrowers pay private mortgage insurance (more commonly known as PMI) until a certain level of equity in the home is reached.

According to Investopedia, there are certain things you need to know about a conventional loan, including:

– Some can be guaranteed by government agencies such as Fannie Mae and Freddie Mac, but those are less typical.

– More often than not, conventional loans have fixed interest rates.

– Conventional loan interest rates and refinance rates tend to be higher than those of government-backed mortgages.

– Potential borrowers are often scrutinized more thoroughly during the application process. They often need to supply more documents, have a stronger credit history and a higher credit score than when applying for a government-backed loan. Overall, there are usually stricter lending requirements across the board.

Keep in mind that the interest rate on a conventional mortgage will depend on different factors, such as the terms of the loan (including its length, amount, and whether it includes a fixed or adjustable rate). The ups and downs of the economy will also influence lenders who set their interest rates based on both current market conditions and any expectations for inflation, among other factors.

Above all, remember that a conventional refinance means you’re exchanging your current loan for a new loan with better terms. But it won’t include cash out on the deal. Most of the time, the goal is to reduce the terms of the mortgage, pay it off earlier and save thousands in interest.

What is a Cash-Out Refinance?

Those extremely low mortgage rates we mentioned earlier? Black Knight, a leading mortgage analytics company, says they’re causing homeowners to take equity out of their homes at levels not seen since the 2008 financial crisis.

Black Knight said in a recent data report that the market had shifted dramatically to cash-out lending, which recently soared to a more than 10-year high. Offering further context, the report also emphasized that there are close to 45 million homeowners with equity available to tap via a cash-out refinance. Within the data were eyepopping numbers such as the average homeowner having roughly $119k in equity, with the total ‘tappable’ number at $6.2 trillion. That’s the amount available to homeowners with mortgages they can borrow against and still retain a minimum of 20% equity in their homes.

A cash-out refinance is largely distinct from any other type of real estate transaction for one specific reason — it means you’re refinancing your mortgage for more than you currently owe. In return, you take a portion of your home equity back in cash and will have a brand new mortgage with a higher balance.

Let’s say your home is worth $300,000 and you owe $200,000 on the mortgage. That means you have $100,000 in home equity, so if you decide to borrow $40,000, then your new mortgage will be for $240,000. 

According to My Home by Freddie Mac, there are certain things you need to know about cash-out refinancing, including:

– Cash-out refinancing is known to have a slightly higher mortgage rate because it increases the amount you owe on your home, making it a higher risk to the lender.

– The new mortgage will have a new rate and new terms that differ from your old mortgage.

– You’re still responsible for all closing costs associated with a refinance.

– There are no restrictions on how you can use the money taken during a cash-out refinance (though some uses can have tax implications). Generally, people use the money for home improvements, paying down debt, or things like medical expenses.

Advantage of Cash-Out Refinancing

There are certain advantages to cash-out refinancing you won’t get with a conventional mortgage. The most obvious is the ability to leverage equity in your home and potentially pay off other debt. This is important because refinance mortgage rates tend to be lower than the interest rates on other types of debt (such as credit card debt), making it a cost-effective way to borrow money.

Additionally, mortgage debt can be paid off up to 30 years, which you won’t find with credit card debt, a personal loan, medical loan, and more. It can make payments more manageable if you have a large amount of debt you’re looking to consolidate.

Finally, mortgage interest is tax-deductible, which means that rolling other debt into a mortgage can be a sound financial plan.

Final Thoughts on Refinancing

If you’re reading this, chances are that mortgage rates remain low by historical standards. But with that being said, a volatile market could mean rates that constantly fluctuate, putting prospective borrowers on edge.

If you’re looking to refinance, you need to shop around for the best rate and do your homework.

As a borrower, you should set your expectations for a refinance as they were when you first entered the mortgage process. Don’t expect to close on the loan as quickly, and anticipate there could be a number of factors that may combine to slow things down. Approach the deal with patience, and you could lock in a rate that could save you thousands of dollars over the life of the loan.

References

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.

References

Cash Out Refinance After Chapter 13

If you’re a homeowner who is eyeing a discharge date to bankruptcy, you may wonder if you’re eligible to refinance your mortgage. The good news is that applying for a refinance likely holds the same restrictions as applying for a brand new mortgage, depending on your circumstance.

But let’s look beyond the minutiae for a minute so you can understand this — if you’re in bankruptcy or emerging from bankruptcy, you are not alone. According to Lending Tree, more than 700,000 people in the United States went through personal bankruptcy in 2018. And MarketWatch says there were 452,797 bankruptcy filings in the first seven months of 2019.

Many people assume when they hit the point of bankruptcy, their credit is beyond repair, and so are any possible changes to home mortgage loans.

The good news, experts say, is that refinancing is possible after bankruptcy. Not only that, but you don’t need to consider Chapter 13 a permanent black stain on your credit that will push you out of any possible savings that may come with refinancing your home.

What is Chapter 13 Bankruptcy?

You may be familiar with Chapter 11 bankruptcy, which is often referenced in the news when companies restructure. That’s because Chapter 11 bankruptcy is a reorganization plan used by large businesses to help them stay afloat while repaying their debts.

According to the U.S. Courts, a Chapter 13 bankruptcy (also known or commonly referred to as a “wage earner’s plan”) offers an individual with regular income a way to repay all or part of his or her debts.

Under a Chapter 13 bankruptcy:

– A payment plan is structured so monies owed can be paid in installments to creditors.

– Commonly, the structure of the repayment is three or five years.

– Is based on the debtor’s monthly income.

– Cannot provide for payments over a period of more than five years.

– Protects debtors from collection agencies during the repayment period (based on 11 U.S.C. § 1322(d)).

Chapter 13 Eligibility and Benefits

If you’re struggling to pay your bills, especially your mortgage, you can’t just wake up tomorrow and decide to file for Chapter 13. Instead, there are a number of basic criteria that will determine your eligibility to file.

According to debt.org, you can’t have more than $394,725 in unsecured debt, including things like credit card bills or personal loans. You also can’t have more than $1,184,200 in secured debts, such as car loans or mortgages.

While the above amounts are adjusted periodically, there are other requirements that need to be met. For instance, an individual cannot file for Chapter 13 bankruptcy if they’ve failed to appear before a court or comply with orders regarding a prior bankruptcy petition over the previous six months (or 180 days). Additionally, a debtor cannot meet Chapter 13 guidelines unless or until he or she has received credit counseling from an approved agency within the same six month period before filing.

The biggest benefit to a Chapter 13 bankruptcy is that it allows a homeowner the means to stop any effort being made to foreclose on the property. That means it automatically suspends any current foreclosure proceedings, buying a homeowner time in the process. While this doesn’t eliminate debt, it can possibly free up enough income to resume normal mortgage payments and keep the house. 

The Rules to Refinance After Bankruptcy

We said it before and we’ll say it again — a refinance after bankruptcy is not impossible. Yes, you might have a more difficult time getting approval to refinance and there are restrictions depending on when the bankruptcy was filed. But you can find your financial footing and still be approved.

Going forward, put yourself in the mindset that lenders will need need to see that you have your finances under control. From that point, you can improve your chances of being approved for a refinance by offering proof of your income and gathering all necessary documentation to prove you’ve been paying debts on time.

According to Rocket Mortgage and various financial publishers, you can qualify for a refinance:

– The next business day (or a waiting period as little as one day) after your Chapter 13 bankruptcy discharge date if you have a government-backed VA loan.

– You’ve observed the two-year waiting period if you hold a conventional loan.

– You’ve observed a one-year waiting period if you hold an FHA loan, but the lender must have verification that you’ve made all bankruptcy payments on time for a 12-month (one year) period.

Keep in mind that if you hold a conventional loan, the waiting period can be different depending on whether your bankruptcy case was discharged or dismissed. In the latter, you may have to wait up to four years to refinance (though you may qualify in as little as two years). In the former, the waiting period might be shortened to as little as two years, regardless of circumstance.

What to Know About Cash-Out Refinance After Bankruptcy

Make no mistake — the first thing you should do when you decide to refinance after bankruptcy is to do your homework and learn about your options. It’s not just the restrictions we’ve already mentioned that might apply to your situation, but you also have to think about the type of loan you want going forward. If your answer is a cash-out refinance, it’s important to know the ins and outs so you can plan ahead and present the strongest application.

Simply put, a cash-out refinance means that you’re replacing your old mortgage loan with a new mortgage loan for a larger amount and walking away with the difference after closing. Homeowners do this so they can take equity they’ve built up in the home and turn it into cash. Unfortunately, some lenders may look at this type of deal as a higher risk and a means to further contribute to financial distress.

Taken together (both your bankruptcy and your application for a cash-out refinance going forward), lenders need to decide whether it makes sense to handle your debt problems going forward — even those debts that have been erased — by approving a new loan for more than what you already owed on your home. They’ll only be able to reach a decision after closely examing your property, income, and recent financial transactions.

Final Thoughts on Cash-Out Refinance After Chapter 13

The type of bankruptcy you declare — in this case, Chapter 13 — will automatically impact how long you’ll need to wait before you’re eligible to refinance your mortgage. While there are a few exceptions, your property will be managed by a bankruptcy trustee who will oversee all ways to reorganize your debt and produce payments to your creditors.

As mentioned, you are not required to give up your property in a Chapter 13 bankruptcy and it has become the remedy of choice for those facing foreclosure. After discharge, be prepared for extra scrutiny on any deals going forward, especially a cash-out refinance.

References

Florida Cash Out Refinance Rules & Guidelines

Economic uncertainty in March 2020 from coronavirus fears has pummelled the stock market, causing investors to funnel cash into bonds. One of the benefits for homeowners is mortgage rates have declined.

Mortgage rates recently have declined to approximately 3.3%, causing a flood of mortgage refinance applications to pour into lenders’ inboxes. According to a recent survey from the Mortgage Bankers Association, the number of people applying for mortgages is the highest since 2012, and 75% of them are refinancing applications.

Are you interested in a cash-out refinance in Florida? Below is important information to know about cash-out refis in the Sunshine State.

Florida Cash-Out Refinance Overview

Before we get into the details of Florida laws, let’s break down what a cash-out refinance is. A cash-out refinance allows you to replace your current mortgage rate with a new one (usually at a lower rate) for a larger amount than you have now. You can take the extra cash left at the closing table and do what you like with it.

Want to remodel your kitchen or bathroom? How about extending your family room? With some of your hard-earned equity, you can do those projects with a Florida cash-out refinance.

Let’s look at a simple example. Say you have a home that is worth $300,000 and you owe $120,000 on it. You may be able to refinance your mortgage for more than you owe with a Florida cash-out refinance if you meet your lender’s credit, income, and debt-to-income ratio (DTI) criteria.

You may be able to take out $50,000 in equity and refinance your loan for $170,000. This example assumes an 80% loan-to-value (LTV) that keeps a required 20% equity in the property.

Rules & Guidelines on Florida Cash-Out Refinance

Florida allows you to take equity from your home once per year. However, you need to keep 20% of your equity in your home. During the last financial downturn, some lenders allowed borrowers to take 100% or even more of their equity. When property values crashed, many homeowners were upside down on their loans (owing more than the home was worth).

Florida laws prohibit borrowers from over-extending themselves, so you only can borrow up to 80% of your home’s current value.

For example, say your home has a current appraised value of $200,000 in Tampa. You owe $100,000 so your LTV is 50%. Lenders in Florida will let you borrow up to 80% of the $200,000, which is $160,000.

If you qualify by your credit, income, and DTI, you might take out $60,000 minus the loan’s closing costs and fees.

But for people with a VA loan backed by the Veteran’s Administration, it may be possible to borrow up to 95% of LTF. For those with an FHA loan, borrowing up to 85% of your home’s value may be possible. Talk to your Florida mortgage loan officer for more information.

Florida Cash-Out Refinance – Can It Reduce Your Payment?

Maybe! If you have a mortgage rate higher than the market average in 2020, you could snag a lower rate and pull out thousands in equity. Historically, many financial experts said if you can save 2% on your rate, you should refinance. But in modern times, many lenders say that saving 1% on your rate is more than enough savings to justify a cash-out refinance.

Lowering your interest rate helps you not just to save money; it also increases the rate at which you grow your equity. For instance, a 30-year fixed-rate mortgage with a rate of 5.5% on a $100,000 house has a total payment of $568. Lower your rate with a Florida cash-out refi to 4.1% and you pay only $483.

Additional Benefits of a Florida Cash-Out Refinance

If you have a lot of equity in your Florida residence, why wait years until you sell the home to tap your cash? You can enjoy many benefits of your equity today, plus (hopefully) enjoy a lower interest rate. Consider:

  • Add value to your property: One of the best uses of your equity is to make improvements to your home that add enjoyment and value to the property. Remodeling your kitchen or extending the family room could add thousands of dollars of value when you sell your home. Plus, you will add immensely to the enjoyment of your home as long as you live there.
  • Pay off debt: If you owe $10,000 on a credit card at 20%, you could pay that off with your equity and pay 4% or less. A side benefit of this move is you will probably increase your credit score. The credit agencies prefer installment debt to revolving credit card debt, and your scores should see a nice bump.
  • More money to invest: If you think about the magic of compounding interest, it can make sense to pull equity from your home at a low-interest rate and invest it into real estate or a business where you can make a high-interest rate.

Final Thoughts on Florida Cash-Out Refinance Rules & Guidelines

Pulling the trigger on a Florida cash-out refinance can be a great choice for your finances. If you can save 1% on your interest rate and pull out tens of thousands of dollars to improve your home, it can make a lot of sense.

If you are concerned about refinancing and starting your 30-year mortgage all over again, think about refinancing into a shorter-term loan. Yes, your payment will be higher in most cases, but you will enjoy a lower rate and pay off your home much faster. Plus you have that equity in your pocket to do with as you wish!

References

Cash-Out Refinance Mortgage and Divorce

Divorce is tough. And when it involves a house, it can exhaust you. There are times when neither spouse wants the home because it contains too many bad memories. The best choice here might be to sell the house, split the proceeds according to the divorce decree and move on.

But what if children are involved? It can get very complicated. One spouse may want to keep the house so the children can stay in the home they know. The other spouse has to move out.

The problem is this: How to split the value of the home? If one spouse wants to just walk, they can sign over their part of the home and leave. Or, if one of the spouses can buy out the other, this solves the issue.

Those cases are rare, however. Usually, spouses fight over the home. The good news is there is a way to solve this problem: A cash-out refinance.

How a Cash-Out Refinance Can Help in a Divorce

Let’s keep things simple and say the house is worth $100,000. The balance on the home loan is $50,000. If the full $100,000 is refinanced, there is $50,000 left that the spouse staying in the home can use to buy out the other.

This sounds simple, right? But there may not always be enough equity in the home to do a regular cash-out refinance. For instance, Fannie Mae, the largest backer of home loans, requires you to have 80% loan-to-value (LTV). The FHA, another popular backer of American home loans, has an 85% LTV requirement.

So in the above examples, the divorcing parties could only pull out $30,000 if Fannie Mae backed the loan and $35,000 with an FHA-backed loan.

In both cases, there is not enough cash available to buy out the other party. But Fannie, Freddie Mac, and FHA know about the issues that can arise in a divorce where both parties own the home. Each mortgage entity has a special refinance option to solve the problem.

The FHA Cash-Out Refinance Divorce Option

With the little-known divorce option at FHA, one co-borrower can refinance the home at up to 97.5% LTV rather than the regular 85% LTV. This is a big advantage, particularly when the property value has declined or does not have enough equity for a regular FHA cash-out refi.

But there are rules that FHA has laid out. The remaining spouse must use the proceeds of the new loan to pay off the other party. Also, the spouse who keeps the home must have an enforceable, legally binding equity agreement that shows the amount of equity that the other spouse received.

Also, the spouse who stays on the mortgage must qualify for the home loan on their own income and meet FHA requirements on credit, debt-to-income ratio, etc. This spouse cannot receive any proceeds from the new home loan.

If you do not need to pull out cash, you can do an FHA streamline refinance to remove a borrower. But the remaining borrower must show they have made mortgage payments for the last six months. This is a good option for a couple that has been separated for at least six months.

The Fannie Mae Cash-Out Refinance Divorce Option

Under special Fannie Mae rules, the home can be refinanced up to 95% LTV. But the home has to have been jointly owned for at least a year prior to the day of the application for the cash-out refinance.

As with the FHA loan, the spouse who stays in the home cannot receive proceeds from the new loan and must be able to qualify for a conventional Fannie Mae mortgage. Both parties must have a written agreement that states the terms of how the property will be transferred, the reason for the transfer, and how the cash from the refinance will be used.

The Freddie Mac Cash-Out Refinance Divorce Option

Freddie Mac has a program for divorcees called the Freddie Mac Enhanced Relief Refinance (FMERR). The home must have been owned by the divorcing couple for at least a year. Also, the loan paperwork must state that the home was occupied as the couple’s main residence. There also needs to be an agreement outlining the terms of the transfer and how the refi proceeds will be dispersed.

The new mortgage is limited to the amount of equity that is needed to buy out the other person, plus what is needed to pay off the previous mortgage.

Final Thoughts on Cash-Out Refinance Mortgage and Divorce

If you have a mortgage backed by Fannie Mae, Freddie Mac, or FHA, there are ways to refinance your mortgage and buy out the other party with equity in the home.

To ensure this is possible in your situation, you need to know what the home is worth and how much equity is in the home. A full buy-out may be possible with the much higher LTVs offered by Fannie Freddie, and Fannie. Because these programs do allow you to refinance the loan at a much higher LTV than normal, they can be a boon to couples who have decided to divorce.

Talk to your loan officer about your situation and determine if you and your ex-spouse can qualify for one of these high-LTV cash-out refinance options.

References

  • Divorce Mortgage Options When Separating. Accessed at https://themortgagereports.com/19712/divorce-mortgage-your-options-when-separating
  • Special Cash-Out Refinance Options for Divorcing Couples http://digitaledition.chicagotribune.com/tribune/article_popover.aspx?guid=1c3ace5e-6444-45f4-ad04-86982f06b5b7
  • Freddie Mac Enhanced Relief Refinance. Accessed at https://fmerr.org/
  • Selling Guide for Fannie Mae. Accessed at https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B2-Eligibility/Chapter-B2-1-Mortgage-Eligibility/Section-B2-1-3-Loan-Purpose/1736853311/B2-1-3-02-Limited-Cash-Out-Refinance-Transactions-08-07-2019.htm#Requirements.20for.20Limited.20Cash.E2.80.93Out.20Refinance.20Transactions.20with.20LTV.2C.20CLTV.2C.20or.20HCLTV.20Ratios.20of.2095.01.20.E2.80.93.2097.25

Plunging Mortgage Rates Increasing Cash-Out Refi’s to 11-Year High

Low-interest rates, rising home prices, and the coronavirus scare are causing homeowners to pull cash out of their homes at a record pace – the highest levels since the 2008 financial crisis, according to new information from Black Knight, a mortgage analytics company.

The mortgage analytics company also noted in January that approximately 9.4 million homeowners could save an average of $272 per month if they refinanced.

And as the coronavirus crisis spreads across the country, mortgage rates may be dipping lower, providing more economic opportunities for homeowners to cash out. The drop in rates is largely because of market fears over the economic impact of the virus. Investors have been snatching up government bonds, pushing yields lower. Mortgage rates generally mirror the yield on the 10-year US Treasury.

Cash-Out Refinances Soared in 2019

Black Knight reports that in Q4, 2019, 600,000 homeowners took out $41 billion in equity from their homes in cash-out refinances. This was the largest volume in one quarter since 2009 when the world was in the middle of the housing crash. Also, cash-out loan originations rose in each of the previous three quarters, the company notes.

With new and refinance mortgage rates under 4% in March 2020, cash-out refis could stay an attractive option for homeowners for months. The refi trend has been on the rise for several years. But experts say there is less cause for concern than in the red-hot housing market years in the early 2000s.

New Cash-Out Refinancing Rules in Place to Protect the Housing Market

When many people think of cash-out refinance, they remember the heady days of the housing boom when homeowners withdrew more than $1 trillion equity between 2004 and 2007.

Lax lending rules allowed many borrowers to pull out 100% or even more of their homes’ value. When housing prices crashed, many people lost their jobs and were upside down on their homes – owing more than they were worth. This crisis led to millions of foreclosures.

Today, however, lending standards on cash-out refinances are more stringent. Income, credit scores, and debt-to-income (DTI) ratios must meet federal guidelines. Also, most lenders only allow you to borrow up to 80% of your home’s value (80% LTV). This limit on cash-out refinances requires borrowers to keep some equity in their homes and may avoid the problem of going upside down on their loans if housing prices crash.

Should You Pull Cash Out of Your Home?

It makes sense for some homeowners to be nervous about pulling equity from their homes. You will have a higher loan payment in most cases, and your residence is collateral for the loan. If you cannot make payments, the lender will foreclose on you.

Still, many smart homeowners can use a cash-out refinance as an affordable source of cash out for home improvements, cash out to consolidate debt, cash out for new home construction, cash out for investment properties, college tuition, and business opportunities.

For example, if you want to remodel your kitchen, you could be looking at a $10,000 or $20,000 investment. Instead of borrowing that money on a high-interest credit card at 18% or 20%, you may be able to snag a refinance loan as low as 4% or 5%. With a smart remodel, you can boost the price of your home when you sell it.

During the Coronavirus Crisis, Cash-Out Refinancing Might Be An Even Sweeter Deal

The US economy is riding a rollercoaster with the coronavirus affecting the entire country, but on the upside, mortgage rates could drop even more and make cash-out refis even more attractive.

The stock market is seesawing every day with record highs and lows, and the Federal Reserve slashed interest rates for banks to almost zero. The Fed also pumped at least $1 trillion into the economy to stave off a major recession.

The Fed bought $500 billion of US Treasury securities and $200 billion of mortgage-backed securities. This has sent mortgage rates to new lows. If you are interested in a cash-out refinance with a 15-year loan, you could score an incredible 2.5% rate. For a 30-year loan, rates are below 4%. Many financial experts say it is time to refinance if you can.

According to Quicken Loans, the number of home loans has soared 40% compared to one year ago. The first weekend in March saw at least $4 billion across more than 14,000 home loans. Quicken Loans also noted it had its second-best day in company history.

Who Are the Best Candidates for a Cash-Out Refinance?

Many financial advisors recommend the best candidate for a mortgage refinance are those who will see a .75% or more drop on their rate. They should be on a 30-year loan with on-time payments and a credit score in the 700s.

Black Knight states there are almost 19 million borrowers with a rate that is at least .75% higher than current rates.

However, you can get a mortgage refinance with a lower credit score; FHA may allow you to refinance with a low rate with a credit score in the low 600s. But check with your mortgage lender to see what their exact requirements are.

References

Oregon Cash-Out Refinance Rules & Guidelines

Mortgage rates have been dropping in March 2020 as the market has bottomed out amid the coronavirus. Many Oregon homeowners are considering a cash-out refinance to take advantage of lower rates. Also, they want to pull out cash while they can before home values drop.

Statistics for Oregon show that home prices have increased 3% over the last year and should increase 3.2% next year if growth trends hold.

If you are thinking about a cash-out refinance in Oregon, below is important information to know.

Oregon Cash-Out Refinance Overview

What’s a cash-out refinance, anyway? This mortgage option involves taking out a new first mortgage for a larger amount than your current one. You take the extra cash left over – a percentage of your equity – and spend it as you please. Or save it. Or invest it. It’s up to you!

For example, let’s say you have a $300,000 home and an outstanding loan of $120,000.

You can refinance your mortgage for more than you owe in a cash-out refinance if you qualify. You could take out $50,000 in equity and refinance the mortgage for $170,000. That is a simple example; talk to a mortgage professional in Oregon for specifics for your financial situation.

Rules & Guidelines on Oregon Cash-Out Refinance

In Oregon, it is critical to remember that you are limited to the amount of equity you can take out. Most lenders in this state only allow you to borrow up to 80% of your home’s value – 80% LTV.

For example, if you have a home that appraises at $200,000 and you owe $100,000, your LTV is 50%. Lenders in this state let you borrow 80% of the value, which is $160,000 in this example.

If you qualify by your credit score, income and debt-to-income ratio (DTI) you can theoretically pull out $60,000, minus fees and closing costs (3-5% of the total loan amount, typically).

But note: If you have a VA loan and are doing a cash-out refi, you may be able to borrow up to 95% LTV. If you have an FHA loan, you may be able to borrow up to 85% of your home’s value. Talk to your lender for more information.

Oregon Cash-Out Refinance Can Reduce Your Payment

Depending on when you took out your home loan, you could have a much higher rate than rates in 2020. As of today, a 30-year fixed, refinance mortgage can be obtained at 3.9%, according to Bankrate.com

If you got your mortgage in 2018, you could be paying close to 5%. That is almost a 1% difference! If you refinance at today’s low rates, you may be able to save hundreds of dollars per month, and take out cash.

For instance, a $400,000 home loan at 4.94% on a 30-year note would be $2,100 per month in payments. The same mortgage with a rate of 4.1% would be approximately $1,900 per month for savings of at least $200 per month.

Other Benefits of an Oregon Cash-Out Refinance

If you have built up considerable equity in your home, why wait until you sell it to take your money? Other benefits of doing a cash-out refinance in Oregon include:

  • Do renovations and home improvements: If you have owned your home for a while, you could have an outdated bathroom or kitchen. You can add a lot of value to your home by doing these and other key upgrades. See cash out refinance for home improvements.
  • Consolidate debt: Owe on credit cards? An Oregon cash-out refinance can give you the low-interest funds you need to save thousands per year in interest. See cash out refinance for debt consolidation.
  • Lower interest rate: Interest rates on a secured debt such as a home are much lower than on a personal loan or credit card. You could save 10-15% per year in interest or more. See cash out refinance rates work.
  • More cash to invest: When you consider compounding interest, it could make sense to pull cash out of your home and invest it at a high-interest rate. You could use your equity to increase your retirement savings or save for your children’s college expenses.

Final Thoughts on Oregon Cash-Out Refinance Rules & Guidelines

Doing an Oregon cash-out refinance and putting cash in your pocket can be a wise financial move. If you have a lot of equity and can save .5% to 1% on your mortgage, you can get the cash you need at a low rate, AND save on your monthly payment.

Talk to a licensed mortgage lender about your cash-out refinance options today – after all, mortgage rates are falling as the Federal Reserve lowered borrowing costs for banks to almost zero this week. Now is a perfect time to snag a low rate and access your equity!

References

Georgia Cash-Out Refinance Rules & Guidelines

Refinancing your mortgage with cash-out replaces your current loan with a new one, and allows you to take a portion of your equity in cash. Like in most states, Georgia rules and regulations require you to have at least 20% equity in your home to take cash out.

While pulling cash out of your home can be a great thing, the major reason to do a Georgia cash-out refinance should be to lower your interest rate. For example, cash-out refinance rates in March 2020 for a 30-year fixed-rate loan are 3.625%. If you have a current mortgage rate of over 4%, you may want to consider refinancing and pulling out some cash.

Below is more information about the rules and guidelines for cash-out refinances in Georgia.

The Georgia Cash-Out Refinance Explained

In Georgia, you only can pull out so much of your equity. This rule is a lesson from the crash of 2008 and 2009 when millions of Americans took out 100% of their equity and got into financial problems. Today, most Georgia lenders only let you pull out up to 80% of your home’s current value (there are exceptions – see below).

Your loan-to-value (LTV) is one of the most critical factors that will determine if you can do a cash-out refi.

For instance, say your house is worth $200,000 and you owe $50,000. YOu have an LTV of 40%. Eighty percent of $200,000 is $160,000. So, you can borrow up to $110,000, if you qualify according to credit and debt-to-income (DTI) ratio.

Exceptions to Georgia Cash Out-Refinances

There are some federally backed loans that have different rules that allow some borrowers to borrow more than 80% of their property’s value. If your mortgage is backed by the Veteran’s Administration (VA), we have possibly great news for you!

Because you hold a VA-backed loan, you get some special rules because of your military service:

  • Borrowing 95% of your property’s value is possible if the home is one or two units.
  • You want to get more than $500 at the closing table.
  • You want to consolidate your credit card debt.
  • You want to convert an FHA or conventional loan in the VA-backed loan.

VA underwriting rules are generous; there is no minimum credit score to refinance a VA loan. But individual lenders may have different standards, so check with several lenders to see what their individual requirements are.

Georgia Cash-Out Refinance Requirements

The requirements to refinance with cash out in Georgia depends on several factors, such as the type of loan you have, your credit score, income, and DTI ratio:

  • FHA: A Georgia homeowner can borrow up to 80% of the property’s value. Generally, a minimum 580 credit score and DTI of 43% is required to qualify, but standards vary by lender. You can have only 15% equity to qualify. But mortgage insurance is required, which adds at least $100 per month to your payment in most cases.
  • Fannie Mae and Freddie Mac: Generally, you need a credit score of 640-680 and a DTI of 36% to qualify. You need to have at least 20% equity to qualify, but you will not have to pay mortgage insurance, which is a savings of $100 or more per month for most borrowers.
  • VA: You can borrow up to 100% of your property’s value. There is no minimum credit score and a maximum of 41% DTI. But every lender may have its own requirements, so check with your lender.

Mistakes to Avoid When Doing a Cash-Out Refinance In Georgia

Understand Georgia’s cash-out refinance rules and regulations now? Great. Before you visit the lender and apply, we recommend you check over the following errors to avoid when refinancing for cash-out in The Peach State:

  • It’s not just about the rate. There are other factors to consider with a refi, such as closing costs, points, and origination fees. A very low rate may be hiding high closing costs. It is best to look at APR and not the rate; the APR factors in all closing costs, fees, points etc. You can look at every mortgage option and compare apples to apples.
  • Failing to call out garbage fees. There always are fees in a refinance. Closing costs, title, application and loan origination expenses are customary. But watch for doc prep and delivery fees. And some lenders will charge you higher than they should to pull your credit report. Also, object to a prepayment penalty. Why should you pay the lender more to pay off your loan faster? You shouldn’t!
  • Not saving enough. We understand that you want to refinance to get cash, but a smart shopper saves a good amount on the new rate. If you only save .5%, you need to see how much yo are saving and compare it to your closing costs. If you pay $5000 in closing costs and save only $100 per month on the new loan, it takes over four years to recoup your costs. If you are going to move next year, you’re losing money.
  • Pulling out too much equity. Most people refinance to pull out cash. But if you take out as much as you can and home values crash, you will be underwater on your loan. You can’t sell the home without a loss. No one wants that.
  • Stretching out the loan term. Most of us start with a 30-year mortgage. They pay down the loan for 3-4 years and refinance for cash. You just restarted the 30-year clock again. You probably are saving on the rate, but you’re paying over more years. So you might be paying more in interest anyway. The smartest move is to refinance into a shorter-term loan if you can swing the payment.

Final Thoughts on Georgia Cash-Out Refinance Rules & Guidelines

Pulling out cash in a refinance can be a good move if you have at least 20% equity and can get a substantially lower mortgage rate, such as 1%.

Experts recommend using your equity in a way that pays you back, such as renovating your home in a way that adds value when you sell (most people love to see a remodeled kitchen, so start there).

Good luck and check with your mortgage loan officer to see if you can qualify for a cash-out refinance loan.

References

California Cash-Out Refinance Rules & Guidelines

Interested in a California cash-out refinance loan? A cash-out refinance loan is where you get some of your equity back at the closing table by taking out a new first mortgage. You have a new mortgage that is higher than it was before, leaving you thousands of cash in hand to spend as you like.

  • You will usually pay a higher rate on a cash-out refi than on your original mortgage.
  • Depending on the loan-to-value ratio (LTV), the lender will determine a maximum on how much equity you can pull out when you refinance.

If you qualify for a California cash-out refinance, it is important to know the guidelines and rules in place in the state. You then have a complete understanding of your options under Calfornia law.

The California Cash-Out Refinance Loan Explained

In California, as in most states, you are limited in how much equity you can pull out. Most lenders will only allow you to cash out up to 80% of the value of the home. The LTV is one of the critical factors that determine if you can do a California cash-out refinance.

For example, if your home is worth $200,000 and you owe $100,000, you have an LTV of 50%. California lenders will allow you to borrow up to 80% of the home’s appraised value. Eighty percent of $200,000 is $160,000.

So if you qualify according to your credit score and debt-to-income ratio (DTI), you may be able to pull out up to $60,000, minus closing costs and fees.

Another California Cash Out-Refinance Example

Say you have a home in San Francisco that is valued at $650,000 and you owe $210,000 on a 30-year fixed mortgage at 5.25%.

In March 2020, 30-year fixed rates are trending under 3.5%. If you refinance, you can save several hundred dollars per month in your monthly payment.

But you do not have enough money in your son’s college fund to pay for in-state tuition when he graduates in three years. You need about $25,000 more to pay for his college in full.

If you do a cash-out refi and add $25,000 to your existing $210,000 balance, you have a new 30-year mortgage of $235,000 at perhaps 3.5% or lower. You may end up with a loan that is bigger but with a lower payment each month.

Exceptions to California Cash-Out Refinance Rules & Guidelines

If you have a mortgage loan backed by the Veterans Administration (VA), you are in for some good luck. Because it is a VA loan, you may qualify for special cash-out refi rules:

  • You may be able to cash out up to 95% of LTV if the property is not more than two units.
  • You want more than $500 back at closing.
  • You are consolidating non-mortgage related debt (such as credit cards)
  • You are converting a conventional or FHA loan into a VA loan.

Should You Do a California Cash-Out Refinance?

Now that you understand what a cash-out refinance is and the limits in California, should you do it? According to Investopedia, you should consider the following factors first:

#1 Know How Much Equity You Have

Home values were rising at the end of 2019, according to the Federal Reserve Bank of St. Louis. The number of underwater homeowners has fallen in the past three years. You can find out what your equity is by checking how much you owe and find out what your home is worth today. You can have a realtor run comps for you in your neighborhood. Or, pay $400 or so for a new appraisal. Then you know exactly how much equity you have.

#2 Know Your Credit Score

You may not qualify for the lowest mortgage refinance rates if your credit is not top-notch. Usually, you need a score of 760 or higher for the best refinance rates. However, if it is an FHA loan, you can get a low rate with a score in the low to mid 600s, but you probably will need to pay for mortgage insurance.

#3 Know Your Debt-to-Income Ratio

You already have a home loan, so you might think it will be easy to get a mortgage refinance. But when you pull out cash, lenders will check your qualifications carefully. Most lenders in California want to keep the monthly housing payment under 28% of your gross income per month. Your overall DTI, including ALL debt payments compared to your gross monthly income, should be 36% or less.

#4 Know the Costs of a Cash-Out Refinance

You can expect to pay between 3-6% of your total loan amount when you refinance. But you can roll these costs into the new loan, or pay a slightly higher rate in lieu of closing costs. But shop around: Some refi fees may be paid by the lender or lowered.

#5 Know the Break-Even Point

A key factor in your California cash-out refinance is your break-even point. This is when the costs of your refi have been made up by your monthly savings.

For example, if you refinance and it costs you $2,000 per month and you are saving $100 per month in the mortgage payment. It takes 20 months to recoup the loan’s costs. If you aren’t moving soon, this is financially sound. But if you think you will move, you might not want to refinance.

Final Thoughts on California Cash-Out Refinance Rules & Guidelines

Pulling out cash in a refinance can be a good move if you have enough equity and will save .5% to 1% on the interest rate. It also matters what you are going to use the money for. One of the best financial moves is to pull out equity to rehab the home. You can end up paying yourself back by increasing the value of the property.

References

Cash-Out Refinance for New Home Construction

The typical homeowner gained approximately $5,300 in equity last year. In more expensive states, many gained more than $20,000 in personal equity. If you are thinking about building a new home, you may be able to do a cash-out refinance on your existing home to pay for the new one.

Many homeowners choose to make the down payment on new home construction with a cash-out refinance. Or, if you have a lot of equity, you might even be able to pay for the new property with all cash.

Learn more below about your options to build a new home with a cash-out refinance.

Overview of a Cash-Out Refinance

One way to pay for new home construction is to pull out equity in your current residence. You might be able to take out up to 80% of your equity (minus what you owe) and use those funds for your new home construction. Bonus – you might be able to refinance to a lower rate simultaneously.

Here are some important factors to consider before you do this:

  • Your ability to do a cash-out refinance depends on how much equity you have, the value of your home, and your credit score.
  • If you are interested in buying and then selling or refinancing one of the properties, a bridge loan could be for you.
  • A home equity loan or home equity line of credit (HELOC) may be the best way to get the money quickly.
  • If you do not have enough equity to pay for the entire home or down payment, you may also consider a personal loan.

How Much Equity Do You Have for New Home Construction?

On first glance, you might think the equity matter is easy. Say you bought your house for $150,000 and the current appraisal is for $275,000. You have equity of $190,000.

So you can apply for a refinance with cash out and get $190,000?

No.

Most mortgage lenders allow a cash-out up to 80% of your available equity, based on the most recent appraisal. Your lender will see a home value of $275,000, subtract $55,000 (20%). That leaves you with $220,000. This sum is used to pay the current loan – $85,000.

The balance of $135,000 is available to you to pull out for new home construction.

Some lenders may let you take out more. For example, a VA cash-out mortgage lets a qualified borrower refinance 100% of their home equity. Some FHA cash-out refis will allow up to 85%. But these programs are saddled with charges and mortgage insurance costs. You might be best off without those.

Rules of a Cash-Out Refinance

One of the best ways to use your equity is to buy a new home. But it is important to stay in your home for a while if you want to use the money for new home construction.

With most refinances, it is required to stay in your current home for at least a year. If you violate the rules, the lender can call the loan and demand repayment.

However, lenders have different rules, so check with a few loan professionals on this important matter.

Also, if you are building a new home, it may not be ready for you to move in for a year anyway.

Other Options to Pay for New Home Construction

You can use a HELOC or home equity line of credit for new home construction. This could be the way to go if you are happy with the interest rate on your first mortgage. But there are some downsides to a HELOC:

  • The interest rate is almost always adjustable after an introductory period of six months to a year.
  • Second, the interest rate is higher than on a first mortgage. How much higher? It depends on your credit score, the amount you want, equity, and part of the country.
  • You also need to watch the balance of your credit line to avoid expensive fees.

Another option is a bridge loan. This mortgage is designed to help you pull equity from one property and put it into new construction or another home.

A benefit of a bridge loan is it is short-term financing. The only may only be for a few months. No monthly payments are required.

But you will have a high-interest rate, up to 2% more than a typical first mortgage. You might get hit with thousands in up-front fees, too. A bridge loan can do the job though if you want to build a new home. When you sell your current house, the bridge loan is paid off at the closing table.

Final Thoughts On Cash-Out Refinance for New Home Construction

Refinancing your mortgage with cash out can be a great way to get the money you need to fund new home construction. You can possibly get a lot of cash at a low-interest rate, depending on your home’s value, equity, and credit score.

But there are time limits on moving to a new property with cash pulled out from your current residence. Talk to an experienced mortgage lender today to figure out if a cash-out refinance is a viable option to fund your new home construction.

References

How to Calculate Debt to Income Ratio for Refinancing

Lenders are being hit with a flood of mortgage refinance requests as the coronavirus is sending rates lower, according to the WSJ. Rates for refinances in March 2020 are near 4% and many want to take advantage to snag a lower monthly payment.

Homeowners who want to pull the trigger on a refinance need to know a few things, such as their debt-to-income ratio (DTI). Your DTI is one of the factors that determine if you can refinance, as well as the interest you will pay.

Below is everything you need to know about debt-to-income ratios and refinancing your mortgage.

Overview of Debt-to-Income Ratio

Your DTI divides the total of all your monthly debt payments by your gross monthly income. Lenders use your DTI and credit history to determine if you can get a loan and what your rate will be. Each mortgage lender sets its own DTI requirements.

To calculate your DTI, just add up what you owe each month, such as rent or mortgage, credit card minimums, student loans, etc. Then, you divide that number by your gross monthly income (before taxes are taken out).

For example, say you have a mortgage payment of $1,000, a $300 car payment, a minimum credit card payment of $200 and a gross monthly income of $6,000.

Your DTI is 25%, which most lenders consider low. Depending on your credit score, you have a good shot at getting a good rate on a mortgage refinance.

However, if you have a lot more debt, you could have a DTI of 35% or 40%. The Federal Reserve states that a DTI of 40% or higher may be a sign of financial distress. You might still be approved for a refinance, but the lender may charge you a higher interest rate.

How Your Lender Views Your Debt-to-Income Ratio

Mortgage lenders prefer borrowers with a lower DTI because research shows that homeowners with a higher DTI are more likely to default.

Every mortgage lender has the right to set its own DTI requirements.

Generally, a 43% DTI is the highest that most lenders will accept for mortgage approval.

If your DTI is above 40%, you may not be able to qualify for a refinance. However, some personal loan companies may lend you money with a DTI of 50% or more. Some personal loan providers will exclude mortgage debt from their calculations. If you need to consolidate credit card debt and cannot refinance, consider trying for a personal loan.

What To Do If Your Debt-To-Income Ratio Is Too High

First of all, keep in mind that your DTI is very important when you apply for a refinance. Most lenders favor applicants with a lower DTI than those with a higher income.

You could have an income of $20,000 per month and a high DTI and be turned down for a refinance. Meanwhile, someone with a $5,000 income and a low DTI may be easily approved. That’s how lenders work.

If you have a high debt-to-income ratio, below are some ways to improve your odds of getting a green light from the lender:

#1 Try a Program With More Lenient Standards

Different mortgage programs have different DTI limits. For instance, Fannie Mae has a maximum DTI of 36%. However, the maximum can be increased to 45% if you meet credit score and cash reserve requirements.

But FHA loans may allow a DTI of up to 50% in some situations. You also do not need to have a high credit score to qualify; some people can qualify for an FHA cash-out refinance with a 620 credit score.

#2 Restructure Debt

You may be able to lower your DTI by restructuring debt. Some people get a mortgage refinance to put their high-interest personal debt into a lower-rate mortgage.

But to qualify for the refinance, you might consider restructuring your student loan into a longer-term plan. Or, pay off 20% interest rate credit cards with a 10% personal loan. Another option is to refinance your car into a longer term or lower rate.

If you can qualify, transfer credit card balances to a new card with a zero percent introductory rate.

#3 Pay Down Certain Credit Accounts

If you have a car loan, try to pay that account down to fewer than ten payments. If you can, lenders may drop that payment from your DTI.

Or pay down your credit cards as much as possible. But to get the most bang for your reduction buck, take every balance on your credit cards and divide them by their monthly payments. Pay off the ones with the highest payment-to-balance ratio.

Say you have a credit card with a balance of $500 and a $45 payment. That is a 9% payment-to-balance ratio. You also have a credit card with a $3,000 balance and a $150 payment. That is a 5% payment-to-balance ratio. Pay off the $500 balance first.

Final Thoughts on How to Calculate Debt to Income Ratio For Refinancing

Getting your DTI as low as possible is a critical factor to get a mortgage refinance. If you are having problems getting approved, make sure you try the strategies we mention above.

Also, some lenders still may consider you if your DTI is 43% or higher. A smaller lender with assets under $2 billion must still look at your DTI, but they may approve you if your credit score is high enough.

The most important thing is to shop around. Try a few lenders to see if you can get approved for your refinance. Each lender has different requirements, so keep trying and you could get a great rate on your mortgage refinance.

References

How to Calculate Cash-Out Refinance LTV

So you have plenty of equity built up in your home. Great! But in most cases, you cannot access that equity until you sell the house. So what should you do?

Today, many Americans are deciding to do a cash-out refinance on their first mortgage. With the financial turmoil from the coronavirus outbreak, bond yields have been dropping, and mortgage rates have headed down.

This is leading to a surge of homeowners refinancing their loans to get lower mortgage payments. In fact, as of early March 2020, 30-year fixed mortgage rates had plunged to just 3.29%. This was the lowest rate that Freddie Mac had recorded in almost 50 years.

If you are interested in doing a cash-out refinance to get a lower rate and access to your equity, you need to know what your Loan to Value (LTV) is and how to calculate it. Below is what you need to know.

Loan To Value Overview and Calculation

LTV is a ratio that assesses the lending risk that a mortgage lender examines before approving a loan. A higher LTV is associated with higher risk. So, if the borrower’s LTV is higher, they may be charged a higher interest rate.

For buyers and refinancers, mortgage companies usually offer the best interest rates to those whose LTV is 80% or lower. Most lenders will not allow the LTV to exceed 80% on a cash-out refinance. Also, some states, such as Texas, prohibit higher LTVs on cash-out refis.

Here is how you calculate the LTV on your property: Divide the current loan balance by the current appraised value. To get an accurate appraised value, the lender will usually require a new appraisal (this will cost you between $300 and $500).

For example, let’s say that you have a home with an appraised value of $400,000, and your current loan balance is $200,000. You have a 50% LTV. You can borrow up to 80% LTV. Eighty-percent of $400,000 is $320,000. Minus what you owe, you can borrow up to $120,000 in your cash-out refi.

Here’s another example: Say you have a house worth $200,000 and your loan balance is $125,000. Your LTV is 63%. You can borrow up to 80% LTV. Eighty-percent of $200,000 is $160,000. Minus what you owe, you can put approximately $35,000 in your pocket at the closing table.

Other Important Factors in a Cash-Out Refinance

Now that you understand what LTV is and how to calculate it, you should be able to determine how much you can borrow in your cash-out refinance.

But what if you are not able to borrow as much as you wanted to? If you need money right now, well, you usually can only borrow up to 80% LTV under current mortgage laws.

If you have some time, however, there are a few things you can do to increase your equity:

  • This is going back to when you bought the home….but putting down as large a down payment as you can will give you more equity. And, if you put down 20% or more, you usually can duck paying private mortgage insurance (PMI).
  • Make your mortgage payments. Yes, if you want your equity to build, you need to pay all your mortgage payments and hopefully on time to avoid penalties and credit score damage.
  • Pay more. If you have a $1,000 minimum monthly payment, try to pay $500 more per month if it does not stress you financially. But ensure that the extra payment is going towards principal and not interest. (Most online mortgage payment sites allow you to make an extra payment specifically toward principal).
  • Refinance into a shorter loan. If you can swing the higher payment, refinance a 30-year loan into 15 years. You will pay your mortgage off much faster, and you will be paying more towards the principal each month.
  • Do home improvements. Making improvements to the property with cash out raises its value. And you do not have to break the bank to add value. Upgrading the kitchen with granite counters, backsplash, faucet and cabinet refacing might cost you $5,000, but it will add quite a bit to your equity.

Last Things to Know About a Cash-Out Refinance

Do you still want to pull out cash? Here are a few final things to remember:

  • Your refinanced home loan replaces your old loan. This means your payments are reset and you are basically starting over with a new loan. That’s why it is a good idea to do a cash-out refinance into a shorter loan if you can handle paying more each month.
  • You may have to pay more for longer. Unless you refi into a 15-year loan, you will be making higher payments for months longer.
  • You might lower your interest rate. If rates have dropped and your credit is better since you took out the loan, you could enjoy a lower interest rate.
  • The interest on your equity could be tax-deductible. If you are using your equity to make a home improvement, the IRS states the interest is tax-deductible.
  • Closing costs. Every new loan comes with a few thousand in closing costs. You can wrap them into the loan or pay a slightly higher rate. But the best is to pay them in cash at closing.

Final Thoughts on How to Calculate Cash-Out Refinance LTV

With many Americans’ homes increasing in value and rates at record lows, it is common for people to do a cash-out refinance. But remember that you can only borrow up to 80% of your home’s appraised value. Rates are very low, so the next step is to talk to a good mortgage loan officer in your area and get started on your refi!

References

  • Publication 936, Home Mortgage Interest Deduction. Accessed at

What Credit Score Is Needed for a Cash-Out Refinance Loan?

With a cash-out refinance, you can use some of the hard-earned equity in your home to pay for college tuition, a home renovation, or reduce consumer debt.

But what are the qualifications to get a cash-out refi? How high does your credit score need to be? Below is the information you need to know about credit scores and your cash-out refinance.

Credit Score To Refinance Your Mortgage

Being eligible to refinance your mortgage for cash out depends on several factors. It helps to have a reasonable credit score, not to mention a solid debt-to-income (DTI) ratio. Also, cash on hand may be required, and don’t forget closing costs!

A major factor in the credit score you need to refi is the type of home loan you are getting. Let’s take a closer look at the most common types of mortgages and the credit scores required.

Conventional Cash-Out Refinance

If you have a conventional home loan, you need to have a credit score of 680 if you have less than 25% equity in your home and have a DTI below 36%.

Your DTI is your total monthly income divided by your total monthly debt payments. If you have a DTI above 36%, you need to have a 700 credit score.

For those with more than 25% equity, you need a 660 credit score for a DTI under 36% or 680 for a DTI above 36%.

However, you can have a 640 credit score and refinance with a DTI of 36% IF you have six months of cash reserves.

FHA Cash-Out Refinance

First of all, you only can pull out cash with an FHA refinance if you have lived there at least 12 months.

You must have a 500 minimum credit score to refinance for cash out, according to the HUD/FHA website. However, keep in mind that lenders will usually have higher requirements for your credit score.

For most lenders, you need to have at least a 580 credit score to do a cash-out refinance, and some lenders may require a 640 or 680.

It is a smart idea to check with your mortgage lender to see what their minimum credit score requirements are for this type of refinance.

VA Cash-Out Refinance

This type of refinance is only for owner-occupants who have a VA loan based on their military service. This is a great loan to have because there is no minimum credit score set by the Veteran’s Administration.

However, specific lenders may have minimum credit score requirements, so check with your VA-approved mortgage lender for details.

Credit Score Not High Enough to Refinance?

So now that you know the general credit score requirements, what if you don’t qualify? First, check with your specific lender to determine what their refinance requirements are for your specific loan type.

Next, follow these tips to improve your credit score:

  • Know your credit score. Seems obvious, by many people don’t have a clue what their credit score is. Knowing your score will tell you quickly if you can refinance. You do not have to have flawless credit to refinance. You can get one free credit report per year at this US government website.
  • Make your payments on time. The most important factor for your score is your payment history. The more on-time payments you have, the better your credit score will be. If you miss one payment, it will affect your score for a year or more, so be careful to pay everything on time.
  • Pay off credit cards. Want to see your score go up a lot fast? Pay off your credit cards, or pay them down as much as you can. The less of your credit lines you are using, the lower risk you are to creditors and the higher your score.
  • Do not close credit accounts. Some think that closing old accounts helps your score. Not true. In fact, it can hurt you because your available credit will drop, which can affect your debt to credit ratio. Leave your old accounts open.
  • Pay down your auto or student loans. If you have paid off your credit cards, wonderful! Now pay off your auto and student loans. Again, the less of your credit you are using, the higher your score. And of course, make sure your auto and student loans are paid on time.
  • Do not open new credit lines. While you are in the refinance process, this is not the time to open new credit accounts. Every new account you open creates a credit inquiry that lowers your credit score. Want that new credit card? Wait until the refinance is closed.
  • Don’t run up your credit. This also is not the time to buy $10,000 worth of home improvement products on your credit card! This action will lower your credit score.

Final Thoughts on Credit Score Needed for a Cash-Out Refinance Loan

Many people think you have to have an 800 credit score to refinance your home loan. This is not true. You can refinance in some situations with a 620, 640, or 680 credit score. Much depends on the type of loan you have, your income, the lender, DTI, cash on hand, and other factors.

The best way to know exactly what your credit score has to be to refinance is to speak to your lender. They will be able to tell you exactly what your credit score needs to be for various refinance programs.

It also is a smart idea to get your credit score as high as you can in the months before you want to refinance. About a year before you want to refi, pay down credit cards and other loans to have the highest credit score possible. This will increase the odds of approval. And you will get the best rate possible!

References

6 Reasons Why Cash-Out Refinance Applications Are Surging in 2020

Cash-out refinance applications have surged in 2020. As of March, one measure of US home-refinancing applications rose to the highest level since 2009.

According to the Mortgage Bankers Association’s refinance index, refi’s soared 78% for the week ending March 6, 2020, to 6,418. Also, the contract rate on a 30-year fixed mortgage during that week fell to a record low of 3.47%.

But why are cash-out refinance applications soaring at this time? Keep reading to learn more.

#1 Fed Funds Rate Is Falling

As of March 13, the Fed Funds rate is 1.25%. It was 1.75% one month ago. With banks having lower borrowing costs, this will eventually exert downward pressure on mortgage interest rates. As rates fall, more people decide to refinance to save on their monthly payment.

And if some financial authorities are correct, we soon could be seeing a Fed rate at 0%. Bloomberg.com recently reported that this key rate could hit 0% as people all over the globe are buying bonds because of the threat of a global slow down in the economy with the coronavirus.

One portfolio manager mentioned in the Bloomberg article said that rates may even plunge below zero soon. The fears about the virus combined with a collapse in oil prices could lead to the US government taking more extreme measures to head off a recession.

The falling mortgage interest rates are definitely causing a surge in mortgage refinance applications.

#2 Home Values Have Soared in a Strong US Economy

Rising home prices have given homeowners in the US more equity in their properties in the last three years. According to The Dallas News, Americans enjoyed $489 billion in increased equity in 2019. In Texas, average homeowners saw a $4,000 increase in home equity.

CNBC reported in 2019 that mortgage holders saw their home equity rise by 4.8% for the year. The amount of equity available for homeowners to use hit a record high of $6.3 trillion.

Some states saw larger increases in their home equity. The average family in the United States with a home loan saw a $7,300 increase in home equity in the last year, and a total of $177,000 in home equity wealth, according to Dr. Frank Nothaf, chief economist for CoreLogic.

With the increase in home equity across America, the number of homeowners who are upside down on their homes was at the lowest level since the financial downturn of 2008.

When homeowners have more equity in their homes and higher property values, they are more likely to submit a cash-out refinance application.

#3 Credit Card Debt Is Rising

Statistics show that the average American holds more than $6,000 in credit card debt, and this number is on the rise. Typical interest rates on credit cards are 18% to 20%. Rather than continuing to pay these sky-high rates, many Americans are choosing to tap their equity.

The interest rate on a cash-out refinance is approximately 4% for a 30-year fixed loan. You can save a bundle with a cash-out refinance.

For example, if you have 15k on credit cards and are paying 18% with a $300 minimum payment, you can save a lot with a 4% rate on a cash-out refinance. The payment on your debt will drop to $75 or so. That’s some big-time savings!

#4 Credit Scores Rise When You Pay Off Consumer Debt

With the low-interest rates, more people are using equity to pay off their credit cards. This not only lowers your monthly payment; it also will often cause a serious bump in your credit score.

The major credit bureaus view credit card debt as ‘worse’ than home loan debt. The reason is that people with a lot of credit card debt are more likely to default on their payments because the debt is ‘unsecured.’

On the other hand, your mortgage loan debt is secured by the home you live in. People are much more likely to continue paying on their home loans in tough financial times. So, your credit score will probably rise when you shift your debt from credit cards to home loan debt.

#5 You Can Tax Deduct Mortgage Debt for Home Improvements

Another bad thing about credit card debt is that it cannot be tax deducted. But most mortgage debt interest is tax-deductible. The only catch is that you can only tax deduct the interest if the loan is used to pay for home improvements. Examples include installing granite countertops, new flooring, energy-efficient windows, etc.

#6 More People Want to Make Home Improvements

More Americans want to make improvements to their homes because home values are continuing their upward trend in 2020. CNC reported that home prices rose 3.8% on average for 2019.

As home prices rise, Americans know that making improvements with cash out to their homes will lead to a higher selling price in the future. So, more homeowners are choosing to do a cash-out refinance to get money for their home improvements.

If you are considering this option, improving the kitchen and master bathroom is an effective way to boost the value of your home.

Final Thoughts on Cash-Out Refinance Applications Surging in 2020

A combination of low-interest rates, rising equity, increasing house prices, and rising credit card debt are causing more of us to do a cash-out refinance loan.

If you have been considering a mortgage refinance, now is a good time to consider it. Mortgage rates have been falling as markets have been reacting to the coronavirus scare. This could be the best time in years to snag a low-interest rate and put thousands of home equity in your bank account.

References

5 Most Prudent Reasons to Cash-Out Refinance

If you are like many Americans, you may have built up plenty of equity in your home in the last several years. You usually need to sell your home to get that money, but you also can do a cash-out refinance to enjoy some of your equity today.

A cash-out refinance replaces your current mortgage with a new one that has a higher loan balance. You take the difference between the two loans in cash.

Let’s look at a simple example:

If your home is valued at $300,000 and you owe $200,000, you have $100k in equity. With a refi, you can get some of this money in your bank account. If you wanted to take out $40,000, this amount is tacked onto your new mortgage. So, the principal on your new loan would be $240,000.

The great thing about doing a cash-out refinance is that it is your money and you can do whatever you want with it – the sky’s the limit! For those considering a cash-out refinance, below are some of the most prudent reasons to pull the trigger.

#1 Make Home Improvements

One of the most prudent reasons to do a cash-out refinance is to make improvements to your home that add value. Some of the home improvements that offer the most bang for your buck are:

  • Kitchen upgrades
  • Full kitchen remodels
  • Bathroom upgrades
  • New roof
  • Energy efficiency upgrades, such as new windows or solar panels

Remember to focus on upgrades that add value to the home. Adding a swimming pool might be what YOU want, but some buyers do not want the liability risk. On the other hand, almost every buyer likes to see a nicely upgraded kitchen with new flooring, counters, backsplash, and cabinets.

#2 Get a Lower Interest Rate On Your Home Loan

Another big reason to do a cash-out refinance is to get a lower interest rate. For example, as of March 13, 2020, 30-year refinance rates are averaging 3.940%. If you have an interest rate on your first mortgage of 4.5%, you can definitely save money on your mortgage every month with a refinance.

And if you have a mortgage from 10 years ago, you will be able to save potentially hundreds per month with a cash-out refinance.

#3 Pay Off High-Interest Debt

If you have a lot of credit card debt, you probably are paying interest rates of 18% or more. Here’s an example of how much money you can save with a cash-out refinance for debt consolidation:

Say you have $15,000 of credit card debt at 18% with a $300 minimum monthly payment. If you can get a cash-out refinance mortgage rate at 4%, your payment on that debt will be approximately $75. That’s a huge savings!

Just be sure if you decide to refinance, do not rack up that amount of debt again on your credit cards!

#4 Pay College Tuition for Your Child

If your adult child needs assistance to pay for college, using home equity to make tuition payments instead of using a college loan can be a prudent choice. Student loan rates can be as high as 7% or 8% in some cases. If you can get a 4% rate on your new mortgage, you can save a lot in interest payments.

#5 Invest in a Small Business or Real Estate

Another prudent reason to cash-out refinance is to invest in a small business or real estate.

Some homeowners decide to use their equity to buy investment properties. This can be a great move if you buy the properties under market value and do not go overboard on making repairs.

However, buying real estate investments with cash out is a risky proposition. The best move is to work with an experienced real estate investor and agent who can advise you on the best properties at the best price.

The Risks of a Cash-Out Refinance

Pulling cash out of your house can be a great idea if you do it for prudent reasons. See also cash out refinance pros and cons. But there are risks involved to consider:

  • If you are getting a higher rate with the new mortgage, many financial experts advise against refinancing.
  • Pulling out equity may stick you with private mortgage insurance (PMI) again. If you pull out 80% or 90% of your home’s equity, you may have to pay PMI again after you canceled it. That will add to your borrowing costs over the long term.
  • Increases the repayment period on your home. With a new first mortgage, you are starting over on house payments, unless you opt for a 15 or 20-year mortgage.
  • The repayment on the cash you take out is being spread over 20 or 30 years. So paying off credit card debt with your refinance may not save you as much as you thought.
  • Increases the risk of default. With a higher mortgage payment, you have a higher risk of losing your home if you hit tough financial times.

Final Thoughts on Cash-Out Refinance

There’s no doubt there are many prudent reasons to pull cash out of your home with a refinance. By adding value to your home with a remodel, you are effectively paying yourself back because you will make more money when you sell the home. And getting a lower rate on your mortgage can save you thousands in mortgage costs.

Talk to your mortgage loan officer and financial advisor to determine if doing a cash-out refinance is a prudent move in your financial circumstances.

References

Cash-Out Refinance for Student Loans

The student loan crisis in the US has reached critical mass. There are approximately 44 million borrowers in the country who owe at least $1.6 trillion in student loan debt. The only debt that people owe more of is home mortgages.

Amazingly, the amount Americans owe on student loans is higher than auto loans or credit card debt. That’s quite an achievement, given how Americans love to buy cars and other possessions on credit.

But Fannie Mae decided recently to offer student debt holders a chance to reduce the interest rate on their student loan debt. The government-backed mortgage company is offering student loan cash-out refinances for student loans. The new mortgage program allows borrowers to utilize some of the equity in their homes to pay off their student debt.

This sounds like a tempting offer. Who doesn’t want to reduce their interest rate on student loans and lower their monthly payment? And as of March 2020, cash-out refinance rates for 30-year fixed mortgages averaged 3.75%.

Hold your horses. It is critical to know that many financial experts say that doing a cash-out refinance to pay off your student loans may not be a good idea for everyone. With the benefits, there are downsides.

Let’s dig into the details of this Fannie Mae program to determine if it’s a good move for you.

How Cash-Out Refinance for Student Loans Work

The Fannie Mae program allows homeowners to use home equity to pay off one or more student loans. This may reduce your monthly student loan payment.

The special offer hinges on what is known as a loan-level price adjustment. This is a risk-based fee assessed to the home loan borrow on a cash-out refinance; this usually comes in the form of a higher rate. This adjustment can be waived if you are using your equity to pay off student loans.

For example, the rate for a 30 year fixed, cash-out refinance in March 2020 is roughly 3.75%. But for a 30-year fixed purchase mortgage, the rate is 3.45%. That adjustment waiver can significantly lower your student loan payments in some cases.

Want to qualify for this program? You need to pay off at least one student loan with the refi. Also, the money must be paid to your student loan servicer at the closing table.

But Should You?

This program might be a good move, but it is critical to look at the risks, too. Consider these risks:

#1 Your House Is Collateral

The first downside is you are putting a lot of your debt into one place – your home. You are making your home the collateral for your student loan debt.

If you are unable to pay your student loan debt, you will damage your credit. But if you don’t pay your mortgage, you will damage your credit AND lose your home. This may not be worth the risk for many people.

Also, experts note that you will pay more interest over the years when the debt is refinanced into one big sum. It also takes longer to pay off your loan because your mortgage amount increased.

#2 You Lose Protections

A nice thing about federal student loans is if you get fired or laid off, there are several programs to help you. You may be able to qualify for an income-driven debt repayment program. In serious cases, some borrowers can defer their loan payments for a certain period.

If you roll your student loans into your mortgage, those protections go out the window. If you get laid off and cannot pay your mortgage, you have few options available.

Also, by wrapping your student loan debt into your home loan, you no longer can get help from employer-assisted repayment of your debt. Further, you cannot qualify for loan forgiveness, which is a possibility for teachers, some public service workers, and a few others.

#3 You Are Lose Equity

Putting student debt on your mortgage eats into the equity you have spent years building. That’s a big negative. If you pull out cash after paying for years on your loan, you are largely starting over on the mortgage (unless you opt for a shorter mortgage term).

Putting tens of thousands of dollars of student loan debt into your mortgage will increase what you owe on your home. If your finances hit the skids, you still have to pay your home loan or the bank comes knocking at your door.

With more debt on the mortgage, you may struggle to make the payments when you hit hard times.

#4 You Lose Tax Deduction Possibilities

Fewer people are itemizing their deductions on their tax returns, including mortgage interest, given the tax law changes that began in 2018. But student loan debt can still be written off! And it does not matter whether you itemize or not. But if you do a cash-out refinance for your student loans, you lose this benefit.

Remember, your student loans are an adjustment to gross income and will lower your taxes. You lose this benefit with a cash-out refinance.

Final Thoughts on Cash-Out Refinance For Student Loans

Refinancing your first mortgage to pay off student loans has risks and is not for every borrower. But for some, it can be a solid financial option.

For example, if you struggle to make student loan payments every month and can reduce your rate significantly, you may want to pull the trigger on the refi. However, take a close look at your finances and your future plans before you call the mortgage broker.

If you do the refi, you should have lived in the home for several years. Say you get a new job in another town and have to sell, but housing prices crashed. You could be upside down and unable to sell because you took on more debt.

If you have at least 50% equity in your home, the risks are lower; even if housing prices plunge, you might still sell the home and come out ahead.

So, take a look at what Fannie Mae is offering and see if you are eligible. But go into the situation with your financial eyes wide open so you make the best decision.

References

Cash-Out Refinance for Home Improvements

Have you been dreaming of remodeling your kitchen with granite countertops, steel appliances, farmhouse sink, tile, and so on? But is your savings account not up to the task?

You may want to think about doing a cash-out refinance to pay for your home improvements. How does it work?

Well, if the value of your home is more than what you own on your loan, you could be eligible to pull out some equity with a cash-out refinance. This loan replaces your current mortgage with a new, larger loan.

The difference between your old mortgage and the new one (minus closing costs and fees, of course) is yours to spend on your home improvements.

Learn more about why you may want to opt for a cash-out refinance for your home improvements and how to do it.

Why Do Home Improvements With a Cash-Out Refinance?

Using a cash-out refinance to improve your home can be a wise choice – if the project increases the value of your home. For instance, if you spend $25,000 on the kitchen upgrades mentioned above and gain $35,000 in value on your home, we can call that a smart investment.

But remember that not every home improvement project is a good investment. Before you start Googling home improvement contractors with your equity in hand, do some research. Just because you like the home improvement you did does not mean it will increase your home’s value.

A remodeling impact study performed by the National Association of Realtors reports these are the six renovations most likely to increase the value of your home:

  • Kitchen renovation
  • Kitchen upgrade
  • Bathroom renovation
  • New roof
  • New windows
  • New garage door

Why Use a Cash-Out Refinance for Home Improvements?

Most people cannot afford to make a major home improvement with cash. A cash-out refinance can give you the cash you need to make a big improvement in your property that will result in a higher selling price down the road.

A cash-out refinance can be a smart choice for many people because it is replacing the old first mortgage with a new one. This will probably get a better rate than a home equity loan or a home equity line of credit. First mortgages are considered less risky so the rate is almost always lower.

You also may be able to rebuild that equity quickly if you make a smart home improvement that increases your home’s value. Also, you should be able to deduct the cost of the improvement from your taxes in the year you sell the property.

Advantages of A Cash-Out Refinance for Home Improvements

  • Big loans: You can probably get tens of thousands of dollars or more, depending on how long you have owned the home and how much its value has increased.
  • Low interest rates: Your home secures the loan and it is a first mortgage, so the rates are some of the lowest on the market (first mortgages carry lower rates than seconds because the risk to the lender is lower).
  • Possible tax benefits: If you are using the funds for major home renovations, you can probably write off the mortgage interest on the new loan.
  • Long period to repay: You will replace your current loan with a 15 or 30-year mortgage that will stretch out the payments.

Disadvantages of A Cash-Out Refinance for Home Improvements

  • Interest payments: You are restarting the clock on your mortgage. This boosts your interest costs over your lifetime. Review the amortization tables on your current and proposed loan. If you want to avoid this problem, consider a second mortgage instead.
  • Foreclosure risk: You are increasing the amount of money you are borrowing. If you do not repay the loan, the lender will foreclose. A home renovation loan, on the other hand, has a higher rate but is unsecured, so is much less of a risk.
  • Closing costs: Any new mortgage has closing costs. Those costs are always paid by you one way or another. You can write a check at closing, take a higher rate, or roll them into the loan balance. To close a new first mortgage, it will probably cost you a few thousand dollars.

Cash-Out Refinance Example

Let’s look at an example. Say you have a 30-year, $200,000 home loan at 6% that you took out six years ago and you pay $1200 per month, with a current balance of $186,000. If your home improvements will cost $10,000, a cash-out refi can be a good option to upgrade your home without straining your budget.

You would take out $10,000 in equity with the refi, for a new mortgage of $196,000 at a new rate of 3.5% for a 25-year term. This would give you a payment of $980. You are paying off your home as scheduled, have an upgraded home and are saving $200 per month. Not a bad deal!

Is Refinancing Better Than a Home Equity Loan?

Maybe. It depends on your circumstances. Refinancing might be a better option than a home equity loan if you intend to stay in your home at least five years, and you can refinance at a lower rate than your current one.

If you plan to move in two years or your rate is already below current rates, you may want to opt for a home equity loan (second mortgage).

But a first mortgage almost always has a lower rate than a second mortgage.

Final Thoughts on Cash-Out Refinance for Home Improvements

Taking out equity with a refinance for home improvements is a great investment if you do a renovation that pays you back, such as a kitchen or bathroom upgrade. If it increases your home’s value, you may end up largely ‘paying yourself back’ with the home improvement. Plus, your family will get years of enjoyment out of your improved home.

Keep in mind that you will need to qualify for the new loan just like you did with your original loan.

Also, most lenders will not lend more than 80% of your home’s value. If your first mortgage interest rate is already low, a home equity loan or line of credit could be a better option. If you have only owned your home a few years, you may not have enough equity to pull cash out.

Speak to a mortgage lender to figure out if you are a better candidate for a cash-0ut refinance or second mortgage to fund your home renovations.

References

Cash-Out Refinance for Investment & Rental Properties

Private lenders and financial institutions have been busy helping homeowners with cash-out refinancing.

In fact, these types of transactions have proven to be very popular.

CNBC (sourcing numbers from Black Knight) says the end of 2019 showed that refinance lending had nearly doubled when compared year-over-year. Cash-out refis on single-family homes were up double digits, and made up more than half of all refinances total.

But what about cash-out refinancing for investment properties?

While lenders may have shied away from such deals just a few years ago, they’re now offering property owners the chance to cash in (or should we say ‘cash-out’) on their investment property.

If you’re an investor – that is to say, someone who generates income from rental properties – a cash-out refi could be a sound financial strategy and something worth looking into.

Holding Equity in a Rental Property

Much like the benefit of building home equity and then going through a cash-out refinance, investors can reap the benefits from the cash-out of a rental property as well.

The above scenario is commonly referred to as a non-owner-occupied refinance, and the only restriction is that lenders may hold you to 75% of the appraised value of the property (commonly called the LTV, or loan-to-value). That’s the maximum set by some government-backed lenders, and means you can only refinance up to 75% of what the property is worth. In some instances, lenders may go as high as 80 percent, but it will likely be in exchange for a higher interest rate on the loan.

It boils down to one thing – being in good shape with equity (the total liquid cash value of the property) before you investigate a cash-out refinance. Experts say that rental properties with somewhere in the neighborhood of 30 to 40 percent equity are good candidates for a cash-out refi. If you’ve held ownership of the property for a number of years, you might even earn a drop in the interest rate as part of the deal.

Rules on Non-Owner Occupied Cash-Out Refinancing

As mentioned above, there are rules and guidelines for cash-out refinancing on investment and rental properties.

If you’re going through the likes of Fannie Mae, the standard eligibility requirements say:

  • The loan-to-value stands at 75% for 1-unit properties and 70% for 2- to 4-unit properties. 
  • Your credit score needs to be very good – perhaps at 700 or better.
  • You need at least six months of cash reserves (or enough money to pay the loan for a period of six months if you have an interruption in income)
  • No cash-out refinance can take place if the property was purchased within the last six months. The only exception would be for properties that meet delayed financing guidelines.

The Fannie Mae guidelines are just one example. Even if you have an FHA loan, a VA loan, or you hold a conventional mortgage (not a government-backed loan), cash-out refinance options are still available. However, lender rules differ and may be more stringent or more lenient. 

What Is Delayed Financing?

Delayed financing comes into play when you pay cash for a property upfront, then quickly obtain a cash-out refinance to mortgage the property (essentially, you’re paying cash so you can turn around and borrow it back again). In this scenario, if you’ve purchased the investment property within the last six months it’s still eligible for the cash-out refi.

According to Quicken Loans, this uncommon refinance option can apply if:

  • Your new loan amount is not higher than the original purchase price with closing costs added in.
  • You had no personal relationship with the seller of the property, known as an arms-length transaction. It means you didn’t buy the property from a friend or relative.
  • No mortgage financing was used to purchase the property.
  • You have documents showing the purchase price and the source of the funds used for purchase.
  • You were given gift funds to purchase the property and you’re not reimbursing anyone with the proceeds from delayed financing.

Keep in mind that these are just some of the requirements you’ll face if you’re going to pursue this type of deal. Additionally, owners of investment properties in these scenarios may only take up out to 60 percent of the value when doing a cash-out refi.

You Need to Be a Strong Applicant for a Cash-Out Refi

Getting a cash-out loan on an investment property is no walk in the park. According to The Mortgage Reports, underwriting is a lot more stringent, since the cash-out aspect and the property being non-owner-occupied both heavily factor in.

In the above scenario, such loans are viewed as risky for lenders, which explains why credit requirements and proof of cash reserves have already been discussed.

Additionally, applicants will likely be asked for their current tax information, rental agreements, and property income. You might even be required to hold additional reserves (between 2-6% of any unpaid loan balances on any other investment property you own).

Finally, some lenders have rules about approving cash-out refis to anyone with more than four financed properties and may not accept your loan application in this circumstance.

Is a Cash-Out Refi Right For Your Property?

If you have equity built up in your investment property and you meet the litany of requirements to cash-out, it’s time to seriously consider your borrowing power as you move forward with the transaction.

There are a few questions you should seek the answers to, including:

  • How much will your payment increase with a cash-out refinance, if at all?
  • Will rental income cover the increase (if there is one?)
  • Will the deal leave you ineligible for future loans?

Experts say that your focus should remain on whether a cash-out refi will prove to be a benefit in the long run and makes the most sense for your investment goals.

A Final Word On Cash-Out Refinance For Your Investment Properties

If you invest in this process, you’ll hear a lot about how the goal of refinancing is a lower interest rate. Period. But it’s not, and it shouldn’t be.

For one, Yahoo Finance points out that you can probably expect refinance rates for an investment property to be a minimum of 0.5 to 0.75 percentage points higher than a normal refinance. If you say that’s a given, then work around it. Focus on current market conditions, your credit score, income and ways your lender will determine if you can meet their qualifications.

As an investor, the more properties you can buy the more wealth you’re potentially creating.  An approved cash-out refinance can help you purchase even more properties and continue to generate revenue. Positive cash flow every month is a good thing and will help you have the cash on hand to jump on future investment opportunities.

References

Cash-Out Refinance for Debt Consolidation

Have you ever wanted to know some fascinating facts about Google paired with finance and real estate trends? If so, you’ve come to the right place.

According to Internet Live Stats, Google processes more than 40,000 search queries every second on average, which amounts to over 3.5 billion searches per day. And one of the top questions people are asking the search engine as it relates to mortgages?

“Should I cash-out refinance to consolidate debt?”

The fact is, Americans are extremely burdened by debt. In fact, Debt.Org says each household in the country carries an average of more than $8,300 in credit card debt, and total U.S. consumer debt has ballooned to $13.86 trillion. That includes things like auto loans, mortgages, credit cards, and student loans.

It’s why cash-out refinance for debt consolidation is on the minds of many homeowners as a means to ease the financial burden.

What is a Cash-Out Refinance?

Some homeowners refinance their mortgage via a simple rate-and-term loan in order to do just that — get a better rate. But others choose a cash-out on their home equity in order to pay off debt.

It sounds a bit like an oxymoron, right? Reduce the equity in your home by getting a new mortgage for more than you owe, then pocketing the difference in cash and using it to pay off other high-interest debt.

That’s the gist of it.

But a cash-out refinance isn’t something you should decide on quickly or spontaneously. For one thing, you need equity built up in your home to even consider it. There are also so-called ‘seasoning’ rules to adhere to, which means you won’t even qualify for a cash-out refi unless you’ve lived in the home for a year.  And above all, there are very strict limits on the amount of money you can actually receive in a cash-out refi (known as a loan-to-value ratio, or LTV).

According to Bankrate, the current gold standard on LTV is 80% of your mortgage equity for FHA (and most government-backed loans) and possibly up to 85% on conventional loans depending on the lender. There’s likely no getting around it, as the numbers are an industry-standard, which means you can only borrow so much of your home’s current value.

Keep in mind that a cash-out refi does a lot more than change your interest rate or the terms of your loan. It takes equity in your home and reduces it in order for you to use that money for something else.

For many homeowners, that something else is to consolidate their debt.

Cash-Out Refinance and Debt Consolidation

If you have significant unsecured debt (loans not backed by collateral) — amounting to perhaps thousands of dollars or more — then a cash-out refinance may be the best way out of your financial black hole. That’s because a cash-out refi may help you save on interest and reduce your monthly payments. It may even help you eliminate that debt completely.

This is literally the best reason to trade one debt for another — because mortgages offer much lower interest rates than credit cards. According to The Balance, the average credit card interest rate in February 2020 was  21.28%, up slightly from the previous month. At the same time, 30-year mortgage refinance rates were around 3.560%. You don’t have to be good at math to know that’s a tremendous savings.

It’s not just credit card interest rates that are high. Value Penguin says the national average for auto loan interest rates is around 5.27% on 60-month loans.  (And typically, the annual percentage rate, or APR, for auto loans, ranges from 3% to 10%. Imagine carrying that 10% interest on a $50,000 car). Meanwhile, NerdWallet sayspersonal loan rates (like the kind used to pay off long-standing medical debt) range from about 6% to 36%.

In any of these circumstances, depending on the qualifications of the individual buyer, a cash-out refinance sure seems like the better option to help pay off other loans.

Pros & Cons of a Cash-Out Refi to Consolidate Debt

In the above scenarios, you can see how cash-out refinance will literally help you save a bundle of cash — especially if it’s replacing high-interest debt.

But with that said, there are obvious pros and cons of using a cash-out refi for debt consolidation.

Among the advantages:

  • A cash-out refi used to consolidate debt means fewer monthly payments overall.
  • A cash-out refi means you might pay less in interest, allowing you to pay off the loan more quickly.
  • A cash-out refi will allow you to leverage your home equity when you need it most.
  • A cash-out refi lets you bypass paying taxes on the money you receive because the money is not counted as income.

But cash-out refinancing isn’t a cureall for your financial woes — especially if debt was a big problem to begin with. With a hefty sum of cash in your pocket from a cash-out, it may very well enable the same type of behavior that drove you to debt in the first place. You need a sound strategy to spend the money, or you’ll find yourself caught up in a vicious cycle.

If you don’t believe you can manage the money wisely, how will you deal with other cons of cash-out refinancing? Consider that:

  • A cash-out refi means it will take even longer to pay off your home.
  • A cash-out refi won’t eliminate closing costs. In fact, they may be considerable.
  • A cash-out refi to pay off credit card debt means you’re paying off unsecured debt with secured debt. This type of move is generally ill-advised because your home becomes collateral. That means you risk losing it if you can’t stay out of financial trouble and fail to make payments.

Is a Cash-Out Refi Your Best Option to Consolidate Debt?

There’s only one person who can answer this question for you, and it’s a financial advisor (or lender) you know and trust. This is the person who will be able to scrutinize your finances, double-check the math, look at all the numbers, and tell you if a cash-out refi is the best way to consolidate debt.

Of course, you can also look for your own lenders and compare rates and terms. But no matter what, you’ll want someone who specializes in cash-out refinancing and can answer any questions and concerns you might have.

Before going all-in on the deal, make sure that a cash-out refinance is a smart play as part of a debt-management plan. Understand how it will impact your payments and interest costs over time. If this is really the financial breather you need to squash high-interest debt into a more manageable monthly expense, it should be an informed decision, and one that will require commitment and discipline going forward.

References

Cash Out Refinance Tax Implications

Do you own a portion of your home? That’s to say, do you have equity built up in the property? Equity is the portion of your home you can say is truly yours because it’s paid off, comparative to what’s left of your mortgage principal.

If you’ve ever conjured up thoughts of refinancing to tap into that equity, you’re not alone. Most Americans pull cash out of their home to consolidate debt. Many of them have no idea of the tax implications if they do.

Any time you’re dealing with money, you need to consider Uncle Sam. When you file your taxes after taking a cash-out refinance, it’s no different.

Taxes and Your Mortgage

As a homeowner, you’re likely very aware of the mortgage interest deduction. According to NerdWallet, it’s a tax deduction for interest paid on the first $1 million of mortgage debt. For many of us who never reach that million-dollar threshold, it’s a claim we can itemize on our tax return every year.  (For homeowners who bought their house after Dec. 15, 2017, the threshold is $750,000 of the mortgage).

Generally, the same tax deductions are available when you refinance a mortgage as when you’re taking out your mortgage. But things change when you file your taxes during the year you take a cash-out refinance. That’s because it means you’ve accepted a loan with a higher balance (or principal) and you took out the difference between the old and new balance in cash.

The Internal Revenue Service will look at a cash-out refinance (or even a standard refinance) as debt restructuring. In turn, any deductions and credits you might be eligible for are less prosperous than when you originally took out the loan.

So, How Exactly Do Cash-Out Refinances Work?

As mentioned above, a cash-out refinance occurs when you swap your existing mortgage for a loan with a higher principal balance. A few days after closing, your lender then gives you the difference between those two numbers in cash.

The good thing about a cash-out refi is that you can use the money for pretty much anything. Many homeowners use it to consolidate high-interest debt by paying down credit cards or putting money back into the house by making repairs and home improvements.

If you’re still confused about how a cash-out refinance works, consider this:

Say you have $200,000 left on your mortgage loan, a home worth $320,000, and you want $40,000 of that equity to make repairs. Your new loan would be worth $240,000. You walk away with the cash and then pay back the new mortgage loan over time, just like the old loan.

Not surprisingly, one of the main questions homeowners have after a cash-out refinance is if they need to report the money as income on their taxes.

How the IRS Views a Cash-Out Refinance

The IRS doesn’t look at the money you get from a cash-out refinance as income. That means you don’t need to include any of that lump sum when you file your taxes.

For example, let’s say that you earn $70,000 a year after taxes as shown on your W-2 (or the form reporting wages paid by your employer and taxes withheld). You take a cash-out refinance of $40,000. One can argue you’ve technically earned $110,000 for the year, but the IRS still considers your income to be $70,000.

In exchange for this loophole, the IRS has put rules in place on what you can and cannot deduct from your cash-out refinance. Essentially, IRS Publication 936 says you need to use the money for a capital home improvement in order to deduct it from your interest. In other words, you need to make some kind of improvement to your home that will increase its value in order to qualify for the deduction. If you use the money for something else, such as paying off debt or going on vacation, there is no deduction.

Using Your Cash So It’s Tax-Deductible

While there are limits on what you can deduct interest from when you go through a cash-out refi, there are ways to use the money that are tax-deductible. As previously mentioned, that includes capital improvements on your home.

According to House Logic, a capital improvement is anything that increases your home value (which means you need to add on or replace, not repair, which just returns something to its previous condition).

Some of the more common capital improvements include:

  • Finishing the basement
  • Adding an addition
  • A new master suite
  • A new roof
  • The addition of a porch, garage, deck, or patio

By IRS rules, capital improvements need to last for more than one year and add value to your home or adapt it for new uses. A full list of eligible improvements can be found in IRS Publication 523.

With that being said, capital improvements aren’t limited to elaborate and costly projects. They also include:

  • A new HVAC system (central air-conditioning system or heating system)
  • New windows
  • Added insulation
  • A home security system
  • Built-in appliances

Keep in mind as you work to improve the value of your property that home repairs will not qualify for an interest deduction.

Remember that only additions count as capital improvements. That’s because home repairs don’t improve the baseline value of your property.

These would include:

  • Fixing or replacing a broken window
  • Painting
  • Fixing a leaking pipe
  • Filling holes or cracks
  • Replacing broken or dated hardware (such as knobs or handles on cabinets)

According to Quicken Loans, one of the most overlooked capital improvements is the addition of a home office. This will allow you to deduct the cost of any interest paid toward a cash-out refi, and can offer other tax benefits to those who are self-employed or small-business owners.

If you add a home office, you can also claim the deduction on your federal taxes. It means you can claim a percentage of what you pay on your mortgage as a business expense.

As you transition from a cash-out refinance to making capital improvements, remember to keep receipts and records to track your renovations and spending.

Final Thoughts on Cash-Out Refinance and Tax Implications

If you’re still considering a cash-out refinance to tap home equity, remember what you’ve read here — it’s not considered income by the IRS. You need to keep in mind any limits on tax deductions you might think you’ll be eligible for when you refinance your loan. Put your money toward capital improvement of your property to make the most of it, including any additional deductions you might be eligible for.

Finally, consult a tax advisor who can clear up any confusion and answer any questions you might have. Refinancing can help manage your tax liability and provide various opportunities to save money, but an expert can help you stay on the right track and make sound financial decisions.

References

What Happens to Equity When You Refinance

At your mortgage closing, you’ll meet with a number of people as you go through the process of signing documents, making payments, and obtaining the keys to your new home.

During this time, you’ll be asked to approve paperwork such as a deed of trust (or mortgage), a promissory note, and the closing disclosure. It will be up to you to know what’s expected of you at closing and understand certain jargon (or key homebuying terms) as documents are passed between various legal representatives.

The one thing no one is likely to explain? Home equity, including what it is and how you obtain it. In fact, it’s possible that while you heard how equity is one of the main benefits of owning a home, you’ve entered into a mortgage not knowing what it is or why it really matters.

More importantly, what happens to equity when you refinance and your loan terms change?

What Is Home Equity?

Quite simply, home equity is the portion of your home that you can actually say you own. A lender will tell you that equity can be calculated by taking the current value of your home and subtracting the remaining balance on your mortgage.

But wait  — there’s more.

As SmartAsset points out, home equity can also be determined by using the appraised value of your home and deducting the remaining mortgage balance.

Confused?

Let’s say you purchased a $200,000 home several years ago and put $10,000 down (or 5%) at closing. You’ve made your mortgage payments faithfully and the principal balance on your mortgage is currently $184,000. Simple math would have you believe the equity in your home is now $16,000, and that math would hold up.

But what if you have the property reappraised and market conditions reflected an increase in value? If the appraisal comes back at $206,000 then what you really have is $22,000 in equity.

At this time, it’s important to understand that home equity can change (and move both up and down) depending on the market and your current mortgage terms.

Using Home Equity

As you’ve probably figured out, your home equity will continue to increase as long as you pay down your loan balance or the home increases in value. As long as both of these situations remain true, equity will be an asset and can be considered a part of your net worth.

Consequently, you can begin to treat the equity in your home like cash and take a partial or lump sum withdrawal if you need it. Some homeowners eventually apply for a home equity line of credit, or HELOC. Others take out a home equity loan (commonly known as a second mortgage).

According to The Balance, both of these loan types are popular and tempting to homeowners because they provide access to a large sum of money at low-interest rates. 

A third option to take advantage of your home equity involves refinancing.

Equity and Refinancing

Refinancing your home can mean trading one loan for another with better terms, or cashing out some of the equity you hold in the property. The caveat in a cash-out refinance is that your equity will drop since you’re obtaining a brand new mortgage and taking out cash at closing.

In the above example, the first type of deal is referred to as rate-and-term financing. Most homeowners pursue this type of refinance if their current mortgage loan carries a high-interest rate (meaning they’re paying more in interest every month than necessary, based on market rate). Obtaining a lower interest rate by refinancing is always the end game for a rate-and-term deal, as long as you aren’t getting hammered by closing costs and fees tacked onto your new mortgage.  

When you close on a new rate-and-term loan, your monthly mortgage payment should be significantly lower. Better yet, you’ll have the same amount of equity in your home and owe the same amount on your principal.

On the other hand, a cash-out refinance draws away equity in the home and puts it in your pocket. Are you smart enough to make good decisions with that money?

As an example, let’s say you owe $150,000 on your mortgage, your house is worth $210,000 and you want $25,000 on a cash-out refinance. You can walk away at closing with the idea of using the money for home improvements and other expenses, but the new principal balance on your mortgage is back to $175,000. You’ve not only taken away some equity, but it’s possible your loan terms (including the interest rate) have also changed … and not necessarily for the better.

Losing Equity in a Refinance

You don’t need an expert to tell you this, but the folks at The Nest will remind you anyway — losing the equity in your home is generally not a good thing. It can be a cushion or a buffer in harder financial times and provide peace of mind as the economy ebbs and flows.

However, there is one way that a cash-out refinance can actually raise the equity in your home. If you take the cash and use it to make repairs and noted improvements to your home, chances are you that you can raise the market value substantially and end up breaking even on the overall deal or even making money. Then, if you want to sell your home,  you can take that money and potentially use it as a down payment for a new home.

Other Thoughts on Refinancing to Tap Equity

Mortgage refinancing can be a bit of a slippery slope unless it’s done under the right terms and for the right reasons.

Many homeowners use a cash-out refinance to consolidate high-interest debt, and that’s typically a very smart idea. What you need to remember is that the cash is a Band-Aid to relieve you from debt. In a best-case scenario, you must resist the temptation to put yourself back in the same financial hole later on. If you do, you’ll compound your loss — in equity, in the additional years you’ll be paying your mortgage, and in the endless cycle of debt you’ll find yourself stuck in.

Above all, only you can make refinancing a solid financial move. Use it to reduce your mortgage payment, or shorten the term of your loan, and in turn build equity more quickly. If you need to take cash out, use it only as a means to bring debt under control once and for all. But always take a close and careful look at your financial situation before making a refinance your final solution. Phone a friend, call a lender, and get advice on the best way to proceed and make sure you’ve retained some equity in your home.

References

Cash Out Refinance Pros & Cons

If you’re a homeowner, you likely remember being privy to the reflection and experience of all those who came before. In fact, you were probably told time and again to use wisdom and prudence as closing day arrived, since buying a home would be among the largest purchases you would likely ever make.

It turns out that refinancing a mortgage is also one of the most important financial decisions people can make. That’s because borrowers (to some extent) choose the interest rate differential at which to refinance. The key is realizing when that differential has been reached and when you’re getting the best deal possible, then taking the steps to refinance before rates change again.

The wild card in the equation is when you chose to pursue a cash-out refinance. While there can be friction to such a deal — at least more so than a straight refinance — financially sophisticated borrowers would be remiss not to consider the pros and cons of leveraging their home equity when the time is right.

What Is a Cash-Out Refinance?

According to the Wall Street Journal, many homeowners who need cash are taking it out of their properties. Not with a home equity loan or a line of credit, but through a cash-out refinance. But the name shouldn’t put dollar signs in your dreams or conjure up the image of an ATM.

Where a straight refinance involves lowering the interest rate and getting better terms on your loan, a cash-out refinance means that you’re borrowing more money in your new mortgage than you owe on your current one.

Here’s the math:

Let’s say you have a current mortgage principal of $200,000. Between what you’ve already paid down on your loan combined with rising home values, your property is actually worth $350,000. If you need cash, have good credit, and can meet some other requirements, you might be able to negotiate a cash-out refinance where your new mortgage is worth $275,000. Minus transaction costs (more on those below), you walk away with a new mortgage and $75,000 in cash at closing.

It sounds easy enough, right?

The Pros of a Cash-Out Refinance

Any mortgage lender will tell you that an obvious benefit to a cash-out refinance is just that — the ability to tap your home equity and cash out the difference on your brand new loan. But according to SmartAsset, other benefits include:

  • Not having to sell your home. Home equity may be the biggest advantage you have if you need cash and there are only two options: sell … or treat your home like a small money mill.
  • You can use the money for almost anything you want. Plan to pay off debt? Make some home renovations? Go on a big vacation? You can do what you want with the cash, though you should use sound financial planning instead of digging yourself further into debt.
  • No taxes. You won’t have to pay Uncle Sam on the amount of equity you cash out, and you can still write off the interest payment on the mortgage.
  • A lower interest rate — when compared to a home equity line of credit (HELOC) or home equity loan.

On the flip side…

The Cons of a Cash-Out Refinance

According to The Journal of Fixed Income, the poor performance of cash-out refis proved to be an important contributing factor to the 2008 financial crisis. In the wake of the recession, when U.S. homeowners reportedly lost close to $6 trillion in equity, cash-out refinancing has been more difficult to obtain (even if it does bolster consumer spending).

The folks at MarketWatch are quick to point out that the cons of a cash-out refinance include:

  • You lose equity in your home, and it’s not guaranteed to come back. Just remember that once you commit to a cash-out refi, you’re walking away with the value of your home in dollar form. That means if you have to sell a few years down the road, you’ll leave at closing with a lot less money. 
  • You could end up owing more than the home is worth. To the point above, have you ever heard a mortgage specialist use the term ‘underwater’ in reference to a property? While rules exist on how much equity a homeowner can leverage, you run the risk that the value of your home could fall even farther, compounding the loss.
  • You’ll still pay closing costs. Just like when you purchased your home, you have to pay closing costs again when you refinance. That can include an application fee, appraisal fees, attorney fees, and more. In fact, if you pay a few thousand dollars in fees to refinance and you only needed a small lump sum in cash-out, you might not break even. Plus, you could end up on the hook for private mortgage insurance (PMI) again.
  • You’ll likely pay a higher interest rate. When you choose a cash-out refinance, you completely wipe away your original mortgage and replace it with a brand new loan. That changes the money payments, and likely will mean a higher interest rate. Remember, the more money you borrow, the more interest you pay.

Other Cash-Out Refi Rules and Thoughts

Comparing the two lists above might lead to the conclusion that a cash-out refinance just isn’t worth it. But if you’re still unsure, it just means you’ll need to do a little more homework on the rules to understand how they’ll apply in your situation.

Simply put, the rules of a cash-out refi will vary by lender. Almost all of them will require that you wait at least 12 months before applying for a cash-out refinance. That means you’ll need to have owned your home for a period of one year before you’re able to take advantage of any equity in the property. Because cash-out refis also adhere to a strict loan-to-value (LTV) ratio, you probably won’t be able to complete a cash-out refi with more than an 80% LTV.

None of this makes a cash-out refi a bad idea. If you’re well past the so-called ‘seasoning’ period of your loan (that 12-month window) and interest rates have dropped significantly, you can use your cash-out refi to pay off high-interest debt (in other words, you can use it to your advantage).

If interest rates have dropped significantly and you know you’ll be staying put in your home, a cash-out refi can also make sense.

As of March 2020, the average 30-year fixed mortgage rate was around 3.55%. A cash-out refinance would yield a better rate, if you bought your home when the 30-year fixed was higher (at least a full percentage point, or more).

The bottom line is that cash-out refis aren’t the best option for everyone, and you should compare the alternatives. A lender may advise that a HELOC may be more flexible and cheaper, depending on your situation. But if your goal is fixed-rate debt consolidation, a cash-out refi is certainly worth a look.

References

Cash Out Refinance Closing Costs

There’s an awareness that many would-be homebuyers struggle to understand the costs associated with the purchase of a home. Some of it can be blamed on the fact that mortgages have numerous and complex terms, underwriting takes weeks (if not months) to complete, and borrowers shop for mortgage loans ensconced in endless regulations and disclosures.

What you discover the first time you buy a home is that loan fees vary widely. This can be attributed to your lenders’ costs and the risks of assuming your mortgage. Even with additional cost factors, total loan fees (closing costs) will still vary significantly based on your lender, your own qualifications as a buyer, and even the state and county where the home is built and the composition of the neighborhood.

All told, costs paid at closing are substantial, averaging thousands of dollars before you can even get the keys to your home. Refinancing means you’ll pay closing costs again, one way or another, and a cash-out refinance doesn’t get you off the hook either. You’ll pay closing costs for any deal that taps into your home equity, which means you’ll need to make sure the potential savings are worth it.

Refinance vs. Cash-Out Refinance

There’s a fundamental difference between refinancing your mortgage and doing a cash-out refinance of your mortgage. According to Policygenius:

  •  A refinance of your mortgage replaces the existing loan with a new loan, with the goal of lowering the interest rate or adjusting the repayment terms. You might leverage a better deal than what you had, but you won’t get any cashback.
  •  A cash-out refinance replaces the existing loan with a brand new loan, but for more than what you owed. You take the difference in cash at closing.

Of these two options (and the many others that exist when the goal is to restructure how you’re paying for your home), the cash-out refinance will always be looked at by lenders as the riskier option.

Why?

Not only are you paying closing costs again, but fees on a cash-out also refinance could cancel out a fair amount of the money you’ll get back. A cash-out refi also means you’ll immediately have less equity in your home than you did before closing.

How Much Cash Can You Get During a Cash-Out Refinance?

That’s an important question, so we’re glad you asked.

According to Bankrate, a lender refinancing a conventional loan will typically allow you to borrow up to 80% of your home’s value. But with that being said, the amount will vary depending on your credit score and other qualifications.

You should know that the loan to value, or LTV ratio, can be found by dividing the loan amount you’ve requested by the property value. Lenders who offer loans insured by the Federal Housing Administration (FHA), will also adhere to that 80% LTV. That’s because the Office of Housing and Urban Development (HUD) reduced the maximum FHA cash-out refi loan in the fall of 2019.

Other government-backed programs follow the same type of guidelines.

Only cash-out refinance loans backed by the U.S. Department of Veterans Affairs (VA) can structure a loan for up to 100 percent of the home’s value. You need to be a member of the U.S. military, a veteran other-than-dishonorably discharged or a family member of a US. military member to qualify for a VA loan or a VA refinance.

What Else Should I Know About Cash-Out Refinance Costs?

We’ve already established that a cash-out refi can be costly, especially if it hikes your interest rate significantly.  But here are other costs you’ll need to anticipate:

  • A cash-out refinance will put you back on the hook for private mortgage insurance, or PMI. If you withdraw the maximum amount of your home’s equity, it means you’ll likely be paying PMI again. That can be an additional cost you weren’t necessarily anticipating, and according to Investopedia, the amount could be substantial. PMI can run between 0.5% to 1% of the loan amount annually.
  • A cash-out refinance will require another appraisal of your property to establish the current market value.
  • A cash-out will, more than likely, prolong the payment of your mortgage for years, if not decades. It’s something you really have to think about when you put a cash-out refinance up against a traditional refinance and realize you could have paid off your home sooner, at a lower total cost.
  • A cash-out may, in some circumstances, temp a homeowner to spend unwisely. If you’re set on going through with a cash-out refinance, make sure you’re not using that money to fund exotic vacations or the purchase of your dream car. Walking away with thousands of dollars needs to lend itself to discipline and pre-planned spending habits such as paying down debt. Homeowners who use the money to make repairs and upgrades to the home are making the best choice to add value back to the property.
  • Above all, a cash-out refinance can increase the risk of losing your home. It might not be a ‘closing cost’, but if you fail to repay the loan you’ll face foreclosure, or the process that lenders initiate to take a house from someone who can’t pay the mortgage.  The legal action is the main way banks will try to get their money back, as a foreclosure will allow a lender to repossess your home, evict you and sell the property since it was used as collateral in your loan.

Final Thoughts On Cash-Out Refinancing

If you’re seriously considering a cash-out refinance, you should take the time and shop around to match your interests to what a lender can provide. Having a sound plan for using the money you’ll get back will assure you of stable financial footing later on.

Overall, experts say you should expect to pay anywhere from 3 to 6 percent of your new loan amount in closing costs if you do a cash-out refinance. Like a typical closing, those costs include everything from lender origination fees to recording fees and credit report charges. 

If your loan amount on a cash-out refinance is $200,000, that means you’ll pay anywhere from $6,000 to $12,000 in closing costs. If you were taking $50,000 of the loan in cash, basic math says you’re spending about 20% of it on closing costs alone.

You may be able to roll your closing costs into your new mortgage, but this strategy also comes at a cost in that you’ll likely pay a higher interest rate. If the goal of refinancing is to make sure the math works in your favor, this is not the best way to go about it.

Above all, tapping into your home equity isn’t a decision you take lightly or make in haste. It should be a strategic move to improve your financial stability and outlook going forward.

References

Cash-Out Refinance Jumbo Mortgage

When you think of the word jumbo, what comes to mind?

Colossal?

Oversized?

Mammoth?

Now use the word in context to your mortgage and a jumbo loan suddenly identifies as a product of perception. Rational thought goes out the window with limited information, and your brain ultimately runs away with endless theories on what a jumbo mortgage is, and why you don’t want one.

Before we put the cart before the horse, let’s take a look at what a jumbo mortgage is, why you might have one, and the complexities of a cash-out refinance if you do.

What is a Jumbo Mortgage?

A jumbo mortgage can be known by other names, such as a ‘nonconforming loan’ or a ‘complex mortgage.’ According to Oxford Academic’s Review of Finance, such mortgages became a popular borrowing instrument at the turn of the century but vanished during the economic downturn and housing crisis of 2008.

Today, the literature tells us that jumbo loans are primarily used by households with higher income levels and credit scores — but they’re not just for the well-off. Sometimes, the loan is classified as such simply because of where you live. 

A jumbo mortgage is a mortgage that exceeds conforming loan limits set by the Federal Housing Finance Agency (FHFA). Such a limit caps the value on loans that are backed by a government-sponsored program such as Freddie Mac, Fannie Mae, or the FHA.

For 2020, the maximum conforming loan limit for one-unit properties was raised to $510,400 (an increase from $484,350 in 2019).  But a loan just $1 more than the limit for your county can make your mortgage a jumbo mortgage.

Unfortunately, you can’t change the limits because they’re tied to local median home values. But you can research the limit for each county on the FHFA website.

How Do You Qualify For a Jumbo Mortgage?

According to Zillow, conforming loans are meant to offer stability and affordability to the mortgage market.  Non-conforming loans can be looked at in the same way, provided that they’re paid on time and the buyer doesn’t default on the property.

To that end, approval for a jumbo loan means you’ll be scrutinized the same way you would for any other loan. Your eligibility will depend on your employment status, income, assets (including cash reserves and current property value), credit score, and outstanding debts.

According to U.S. News & World Report, anyone applying for a jumbo mortgage will be scrutinized by a manual underwriting process, which means it will be more difficult than qualifying for a conforming loan. That’s because the lender sees your mortgage as a bigger risk than most, and the underwriting process assures they’re doing their own due diligence to mitigate financial risk.

Experts say your credit score will hold more weight when applying for a jumbo loan, as well as cash reserves. Each lender can also set its own criteria on debt-to-income ratio, down payment, and more.

What It Takes To Cash Out Refi a Jumbo Loan

When you elect to refinance a jumbo loan, it’s a whole new ballgame when it comes to tough application requirements. When you elect to cash out on that refinance,  you’re asking for yet another pricing adjustment that will drive the terms of that jumbo mortgage even higher.

According to Rocket Mortgage, it can be difficult to find a lender willing to refinance a jumbo loan. Asking to pull equity out of your home can give those same lenders additional pause, depending on the circumstances.

Are you using the cash out to address a life event that has created a pressing need, such as a medical emergency? Are you paying off student loans or extracting cash out money for home improvements (thereby investing in your property)? Or are you are taking that cash and flaunting your newfound wealth by going on vacation or buying a fancy car?

Sharp mortgage professionals might help you structure that cash-out refinance and obtain the funds. But sharp lenders will be going through your financial history with a fine-tooth comb, so you’ll want to understand everything they’re looking for and be able to answer any questions asked.

To qualify for a cash-out refinance you might:

  • Need at least 20% equity in your home. Even if you’re unsure about a cash-out refi, it’s a good idea to know exactly how much equity you have in your property, which is the difference between your principal amount left to pay and the appraised value. According to the folks at SmartAsset, it will be easier to find a lender willing to let you refinance if you have a good deal of equity in your home.
  • Need a credit score of at least 700 or higher. To qualify for a jumbo loan refinance, most people need a credit score of at least 700. Some lenders even require a score of 760 or higher.
  • Need reserves that go above and beyond. That includes whatever money is in your bank accounts and what’s tied up in investments, along with other liquid assets. At a minimum for a jumbo loan, a lender might ask you to prove you have at least 6-to-12 months of a way to make payments on your mortgage if your income is interrupted.
  • Need a second appraisal. Lenders may want two appraisals, according to NerdWallet — especially if the mortgage exceeds $1 million.

Additional Requirements to Cash Out on a Jumbo Loan

Across the board, finance experts agree that a bankruptcy or foreclosure visible on your credit report will likely prevent you from refinancing a jumbo loan. If you have such an item listed, you’ll likely need to wait 7 to 10 years before you refinance a jumbo loan.

If you’ve been approved for a cash-out refinance on a jumbo loan, the folks at Rocket Mortgage say you should expect to pay higher closing costs because of the higher principal balance. It could be 2-3% of your loan, or it could be more. It’s possible you can find a lender willing to roll in the closing costs, but you’ll either be dinged with a higher interest rate and/or a higher payment, adding in the fees plus interest paid over the life of the loan.

Keep in mind that a cash-out refinance can be beneficial if you need the money. If you have a large amount of debt you need to consolidate, mortgage interest rates are typically a lot lower than other types of debt.  That means you can possibly save thousands of dollars consolidating that debt into a home loan, even if the lender limits the amount of money you can take.

A cash-out refi on a jumbo mortgage will take longer to close than a typical loan, but patience can win out. Before borrowing, you should take steps to ensure that you’re getting a good deal by shopping around and comparing interest rates, closing costs, and other loan features.

As you go, remember that jumbo mortgages are available to homebuyers with a wide range of profiles. If the timing is right to refinance, you’ll find a lender who can make it work.

References

Cash-Out Refinance vs. Home Equity

Do you want to access some of the value that has accumulated in your home? You have two options: a cash-out refinance or a home equity loan. These loans have some things in common, but they are not the same.

If you already have a mortgage, taking out a home equity loan means another monthly payment. On the other hand, a cash-out refinance will supplant your current mortgage with a new one with a new interest rate, higher loan amount, term, and monthly payment.

Before deciding for one loan or another to access your equity, it is wise to understand all aspects of cash-out refinance and home equity loans. Which is best for you depends on many factors that we will explore in detail below.

Why Get a Cash-Out Refinance or Home Equity Loan?

Many say that purchasing a home is like having a forced savings account. When you make your monthly mortgage payment and the property appreciates, you build your equity in the house.

But you cannot easily access that equity any time you like. You have to sell the home. Another option is to borrow some of the equity while you are still in the home. A cash-out refinance and home equity loan allow you to do that.

Naturally, you will need to have some equity in your property to get one of these loans. If you bought your home recently, you might not have a lot of value accrued yet.

After you have owned your house for at least five years and made payments on time, you may have enough equity to pull out, according to Johnna Camarillo, assistant VP at Navy Federal Credit Union.

Borrowers typically use cash out to improve the home, pay off debt, or make college tuition payments.

How To Figure Out How Much Equity You Have

First, find out what the value of your home is. Next, find out how much you owe on your home loan. If the difference between the numbers is a positive one, you have that much equity in the property. But if you owe more than what the home is worth, you cannot get a cash-out refinance or home equity loan at this time.

Keep in mind that you generally need to have at least 10% to 20% equity in the home before you can pull out cash, according to Bankrate.com.

How Are The Loans The Same?

A cash-out refinance and a home equity loan usually has fixed interest rates, but you can get an adjustable-rate with a cash-out refinance.

You usually need a loan-to-value ratio (LTV) of 90% or less to qualify for either loan.

Both loans usually give you a lump sum of cash at closing.

How Are The Loans Different?

Interest rates are lower for cash-out refis than home equity loans. This is because if there is a foreclosure, the lienholder on the first mortgage gets paid first. Home equity loans are, therefore, considered a higher risk for the lender.

Lenders may pay all or most of your closing costs on home equity loans, but not on cash-out refinances.

A mortgage-refinance is one large loan, while a home equity loan is a second mortgage.

Common Questions About Cash-Out Refis vs. Home Equity Loans

Which loan is easier to get?

The borrower usually can qualify easier for cash-out refinance. It is a replacement for your first mortgage. Your lender likes that because they are in ‘first position’ if there is a foreclosure.

Home equity loans are second mortgages and are considered a riskier bet for the lender.

How much money can I borrow?

It depends, as with most things. The amount you can borrow depends on the equity you have in the property, credit score, and debt-to-income ratio. Also, some states, such as Texas, limit the equity you can take out. A home equity loan cannot exceed 80% of the fair market value of the property in The Lone Star State.

When do I have to pay the money back?

A cash-out refinance usually can go 15 to 30 years. Home equity loans usually have a 10 or 15-year term.

Experts recommend to get the shortest term you can, but still have a mortgage payment that will not break you. Depending on the cash you borrow, the payment difference between a 10 and 15-year home equity loan may only be $50 or $75 per month. But the interest you will pay over that additional five years is thousands of dollars.

Am I going to get taxed?

You will not be taxed on the equity you pull out of a cash-out refinance or home equity loan because it is borrowed money that must be paid back.

However,  the mortgage interest deduction is another question. For home equity loans set up in 2018 or later, “the proceeds need to be used to buy, build, or substantially improve the taxpayer’s home that secures the loan,” according to the IRS.

For a cash-out refi, it is the same as all first mortgages. As of 2018, the mortgage interest deduction is limited to loans of $750,000 or less, or $375,000 for a married taxpayer who files a separate tax return.

Final Thoughts on Cash-Out Refinance vs. Home Equity

Which home loan you take out depends on your individual circumstances. Generally, if you have an interest rate that is lower than the current market, it may make sense to keep your first mortgage in place and get a home equity loan.

If your first mortgage rate is .5% or higher than current rates, you may consider doing a cash-out refinance.

The best bet is to chat with your mortgage loan officer or broker who can advise you on the best mortgage product to fit your individual needs.

References

Texas Cash-Out Refinance Rules & Guidelines

If you are thinking about a Texas cash-out refinance loan, you are considering a home loan where you receive cash back at the closing table after you pay off the first mortgage, liens, and closing costs. You are taking out money over what you owe, which leaves you cash available to spend as you wish.

Texans like to get cash-out refinances to consolidate debt, perform home improvements, new home construction, pay for college, or to have an emergency fund, among other uses.

If you are eligible for a cash-out refinance loan in Texas, it is essential to learn about the rules, guidelines, and restrictions in place on these loans in The Lone Star State. That way, you will have a full understanding of your financial options and what you can and cannot do under Texas law.

Explaining the Texas Cash-Out Refinance Loan

In 2017, the state passed new laws that affect all cash-out refinance loans in Texas. The good news is the new regulations are generally friendlier to those who want to pull equity out of their properties:

– You can refinance into a conventional loan without doing a cash-out a year after you did a cash-out refinance loan.

– If you are using your land for agricultural reasons, you can now get a cash-out refinance loan in Texas.

– The fee on a cash-out refinance loan in Texas has been lowered from 3% to 2%.

–  The authorized lenders list has grown. Feel free to shop for a cash-out refinance loan at a savings and loan association, credit union, bank subsidiary, mortgage company, or a mortgage banker.

A Texas cash-out refinance loan also is known as a Section 50(a)(6) loan. A Section 50(a)(6) loan might be a good choice for you if you want to refinance and need extra money. You can get a low, fixed-rate that provides more peace of mind and stability than a home equity line of credit (HELOC)  with a variable interest rate. With a fixed-rate cash-out refinance, you will always know how much you have to pay every month.

Any homeowner in Texas is eligible for a Texas cash-out refinance loan if you have more than 20% equity in your home. You also must meet your lender’s credit, income, and debt-to-income ratio standards.

Also, any primary residence in the state qualifies as long as it is not more than 10 acres. But a rural property can be considered for a cash-out refi if it is up to 100 acres.

What Are The Rules For a Cash-Out Refinance in Texas?

Note that this state has unique rules on cash-out loans and home equity. In Texas, the maximum amount of a loan on any cash-out refinance mortgage of an owner-occupied property is 80% of the property value (LTV).

For example, say your property is worth $200,000, and you have 60% equity in the home. In this situation, you can borrow 40% of your property equity. That means you can pull $80,000 out. The 20% of your home’s value that is left – $40,000 – must stay there.

Texas cash-out refinances are different from other states because of tighter home equity laws. The state remembers the mortgage meltdown of 2008 and 2009, and seeks to avoid a repeat!

What Else Should You Know?

Generally, loan rates for a Texas cash-out refinance are slightly higher compared to a rate and term loan; this loan is where you only are refinancing to get a lower rate or different term, not to take cash out.

Texas also has closing cost rules on cash-out refinances that you should know. The Cash-Out law says the total closing costs cannot be more than 3% of the loan amount. This rule applies to subsequent mortgages after the original cash-out loan.

So, when a homeowner refinances a current cash-out refinance loan, the 80% LTV rule applies, as does the 3% closing costs rule. This is the case for the remaining loan term until you pay off the loan.

Also, a cash-out refinance loan in Texas can have a fixed rate from 15-30 years, and seven and 10-year adjustable mortgages also are allowed. However, you cannot qualify for a three or five-year adjustable-rate mortgage.

These rules also apply:

  • You must have at least six months of ownership of the property you are refinancing.
  • You must pay off any existing property liens at closing.
  • Borrowers must wait at least one year between cash-out loans.
  • You can refinance a Texas Section 50(a)(6) loan into a rate and term refinance without taking out cash, but you must wait at least one year from the date of your cash-0ut refinance closing.

Final Thoughts on Texas Cash-Out Refinance Loans

Texas cash-out refinance loans have a few more restrictions and rules than some states. You cannot take out more than 80% of your property’s equity, and you only can do one refinance per year.

But these rules have been put in place to protect borrowers from overextending themselves, which is always a good thing. You still have plenty of flexible options to get the funds you need.

If you have questions about a Texas cash-out refinance, talk to a mortgage specialist who is licensed to handle Texas home loans. He or she can offer guidance through the mortgage process and help you get the best refinance loan for your needs and budget.

References

How Does a FHA Cash Out Program Work

Speak to a reputable lender about cash-out refinance, and he or she will tell you this: Cash-out refinance loans are loans in excess of your previously outstanding loan amount.

That’s the easy way of explaining it. You owe a certain amount on your mortgage principal, you cash out some equity in your home, and you add the two numbers together to get your new mortgage amount.

What’s not clear, at least until you get into the nitty-gritty of the loan details, is if you even qualify or how the loan will be structured. That’s because if you have an FHA mortgage, you’ll need to meet certain requirements to access your home equity.

The First Thing To Know About FHA Cash-Out Refinance

The FHA touts itself as the largest mortgage insurer in the world, serving more than a million homebuyers each year. Other products support renters, with a focus on helping seniors and people with disabilities.

But when you dig deep into FHA refinance loan programs, you’ll discover there are two primary options: a straight FHA cash-out refinance, and an FHA streamline refinance. The FHA cash-out loan gives you exactly what’s described above — cash at closing to you, the borrower, and a bigger balance on what you now owe on your home.

But because it’s considered a riskier offer by lenders, an FHA cash-out refinance also requires additional documentation and for borrowers to meet certain eligibility requirements.

What Are the Benefits of an FHA Cash-Out Refinance?

What are the benefits of any cash-out refinance? To tap into home equity for a specific reason. Many homeowners use the cash out for home improvements, which is a smart strategy that increases your home’s value. Others use it to pay down existing debt from school loans or credit cards. Some people use it to meet other financial goals.

In any case, the FHA Cash-Out Refinance is plush with benefits. According to The Mortgage Reports, an FHA cash-out loan can be yours even if you’re a low-credit borrower. It can be yours even if you couldn’t get a home equity loan or conventional cash-out loan.

The biggest benefit, above all, is knowing that an FHA cash-out refinance will allow you to take out a loan worth up to 80% of your home’s current value. 

What You Really Need to Know About FHA Cash-Out Refi

There are pros and cons to any cash-out refinance, including a few key things you need to know about how the FHA cash-out program really works.

First and foremost, understand that the Department of Housing and Urban Development (HUD) took a huge step in 2019 to curb the number of cash-out refinances. They did this, according to the Housing Wire, by limiting cash-out refinances to 80% of a property’s value. This is down from the previous standard of 85%.

If you’re trying to picture the impact the change had, let’s do a little math on a property estimated to be worth $200,000:

With the old 85% LTV rule:

  • Property value: $200,000
  • Current loan balance: $100,000
  • 85% LTV loan: $170,000
  • Estimated closing costs: $4,000
  • Cash out: $66,000

With The New 80% LTV rule:

  • Property value: $200,000
  • Current loan balance: $100,000
  • 80% LTV loan: $160,000
  • Estimated closing costs: $4,000
  • Cash out: $56,000

The change, which went into effect for loans with case numbers assigned on or after September 1, 2019, puts the FHA in the same bracket as the loan-to-value rules through Fannie Mae and Freddie Mac.

Here’s What Else Goes Under the FHA Microscope

Your income, assets, and creditworthiness could all be factored into your request for an FHA cash-out. The value of your home and the payments you’ve been making on it will also be considered:

Credit: Your credit score is something you’ll carry with you through life. Lenders will ultimately decide whether to do business with you based on your past choices and money habits and if your debts are being paid on time.

According to existing FHA guidelines, there is no minimum credit score established for cash-out refinance, but lenders will have their own requirements. The minimum score needed for an FHA cash-out refinance is usually between 620 and 680.

You should realize that at least one credit score is needed for all FHA-backed borrowers. Other lenders might require three applicable scores, and use the lower one for qualification. A lot will be riding on the lending institution’s credit requirements in this case.

Income: One of HUD’s five key steps to homeownership includes watching your spending and savings. That’s because the FHA requires proof of sufficient income to qualify for a cash-out program. You’ll generally need to verify your income by providing a minimum of two recent paycheck stubs, along with your current year-to-date earnings. Additionally, you’ll be asked to show W-2 forms from the last two years and your most recently filed federal income tax returns.

Assets: While FHA lenders don’t always ask for asset verification, it’s possible you’ll need to provide bank and investment statements. You should check with your FHA lender to see if asset verification is part of the underwriting process. 

Appraisal: Any FHA-backed lender considering your application will require an appraisal on your home. The value will be used to determine the maximum cap on the loan (with the cash-out included). As mentioned above, the maximum loan amount is 80% of the property value. You may also be subject to further loan limits based on your state, county, or Metropolitan Statistical Area.

Still Thinking About an FHA Cash-Out?

Despite the stringent requirements, FHA cash-out loans are considered to be a good value to homeowners, especially those with lower credit. However, you should keep in mind that the FHA will require documentation proving you’ve made on-time payments on your home for the previous 12 months. Additionally, any mortgaged property must have a minimum of six months of payments before a refinance will be considered.

Beyond these requirements, the FHA will not refinance the property unless it will remain owner-occupied. Finally, it should be noted that you’ll be unable to add a co-borrower on the new loan unless he or she is also an occupant of the home.

While this article has covered the majority of things you’ll need to know about the FHA Cash-Out Program, remember that FHA-backed refinances are available (and intended) for existing FHA loans, as well as loans that originated from a non-FHA lender. That means you can apply for an FHA cash-out refinance while holding a conventional loan, a VA loan, or any other non-FHA mortgage.

On a final note, it’s in your best interest to shop around for the best interest rate on your FHA cash-out refinance, even if you end up using your existing financial institution.

References

VA Cash Out Refinance Rules & Guidelines

For those who are considering buying a home or already in the process, there is a dizzying array of options and things to consider. The government offers a multitude of different home loans, but they come with strings attached and buyers have to meet certain criteria to be eligible.

One such loan is the VA loan, which is a government-backed loan specifically for those who have served in the armed forces. If you’re not a current service member, a military veteran, or a surviving relative, you won’t have the option of applying for a VA loan.

If you are eligible, you’ll want to learn as much as you can about the U.S. Department of Veterans Affairs and the programs offered to assist individual veterans in purchasing or rehabilitating homes. More importantly, you’ll want to understand both your financing and refinancing options, especially if you’re looking to build equity in the home and later take advantage of a cash-out refinance.

What Are VA Loans?

We just mentioned the Department of Veterans Affairs, but let’s take a minute to understand its purpose and the VA loan process.

The VA Loan program has been touted as the most dynamic loan program on the market for service members, veterans, and military families. That’s because VA loans offer significant benefits that other government-backed loans don’t. They’re more flexible, require no down payment, or private mortgage insurance. They also feature extremely competitive rates and terms, allowing a qualified borrower to purchase a home with almost no money out of pocket.

There are two main loan ‘types’ from the VA. The first is a ‘direct home loan’, where the VA serves as the mortgage lender. The second is a ‘VA-backed home loan’, where the VA guarantees a portion of the loan from a private lender. There are also loan products designed specifically for Native American veterans, and for those with a current VA loan looking for an interest rate reduction. A cash-out refinance is one of the other subtypes of VA loans.

For any military member who doesn’t have a ton of savings or excess cash, knowing what you’re getting into with a VA loan can give you peace of mind and an understanding of how the finance process works now and should continue to work in the future.

The VA Cash-Out Refinance Loan

Despite what you may have heard, a cash-out refinance is not going to give you newfound wealth or produce money out of thin air.

At a certain point (well within the life cycle of owning a particular home), a VA-backed cash-out refi will let you replace your existing loan with a brand new one. The difference will be that your new loan amount will be for more than your old loan amount, and you’ll pocket the cash between those two numbers.

Confused?

Let’s say you own a nice 2,000-square-foot, three-bedroom home worth $250,000 and you have a current mortgage principal of $175,000. You want a cash-out refinance (i.e. a new loan under different terms) and you’d like to walk away with $25,000 cash. Your new VA-backed loan would be for $200,000.

What you need to do next is find out if you’re eligible to refinance and learn how to apply for the VA’s Certificate of Eligibility.

According to NerdWallet, the Certificate of Eligibility tells a lender you meet the requirements to obtain a VA home loan. You can start looking for a home without one, but you can’t close on the home until the certificate is obtained. (In this case, you’ll need a certificate even for the refinance of an existing VA Loan. That’s because eligibility can be stripped away if you’ve been dishonorably discharged from the service or didn’t meet time-served requirements).

Why You’d Want to Pursue a VA Cash-Out Refinance

Military members looking into a cash-out refinance can use the money for a variety of different needs, such as making home improvements, paying off debt, handling emergencies, and more.

A VA-backed cash-out refi can also allow you to refinance a non-VA loan into a VA-backed loan.

Overall, this type of refinancing is available to any qualified veteran homeowner, regardless of whether their original loan is through the Federal Housing Administration (FHA), the U.S. Department of Agriculture (the USADA) or via a conventional loan.

Like other VA loans, cash-out guidelines require no mortgage insurance. It’s also the only refinance option available (when compared to any other loan type) that allows the borrower a loan-to-value ratio (LTV) of 100 percent. This is incredibly important, as the LTV is typically a barometer of risk assessment that the lender will use before approving a loan.

The one thing you shouldn’t do is to confuse LTV with your debt-to-income ratio. That’s because VA lenders usually allow a debt-to-income ratio of up to 41 percent. This means they’ll take all your monthly debts into consideration when packaging your cash-out refinance, including your new home payment, and any car payments, student loans and other outstanding debt. When you add all these numbers together, it can’t exceed 41 percent of your before-tax monthly income.

VA Cash-Out Refinance Eligibility

You might be eligible for a cash-out refinance if you meet the requirements set forth by the VA. In order to qualify, you:

– Must have obtained the VA home loan certificate of eligibility (proving, among other things, that you meet the minimum active-duty service requirement).

– Must meet the VA’s – and your lenders – criteria for income and credit.

– Must live in the home you’re refinancing.

The quickest (and perhaps easiest) way to move through this process is by using a VA-approved lender. That’s because most of them can issue a Certificate of Eligibility immediately if there’s already sufficient information in the VA’s database that proves your worthiness.

If you don’t meet the minimum requirements, all hope is not lost. You can still qualify if you were discharged from the military due to things like a hardship, obtaining an early out, if you were part of a reduction in force, or had a service-connected disability or medical condition.

Final Thoughts on VA Cash-Out Refinance

The true cost of a VA loan comes in the funding fee, which is applied to every single VA purchased or refinanced loan. There’s also no way around paying it, as the fee goes to the Department of Veterans Affairs to help cover losses and keep the loan programs running.

The funding fee can change depending on a number of factors, including the type of loan you’re looking for (such as a cash-out refinance), whether you’re making a down payment, and whether you’ve already used your VA loan benefit before. 

The good news is that veterans going through a VA refinance can opt to pay the fee out of pocket or finance it over the life of the loan.

If you have more questions about VA loan cash-out refinancing, it’s best to talk with a VA loan specialist. He or she can help guide you through the process and help you take advantage of all the benefits found in a VA refinance.

References

Freddie Mac vs Fannie Mae Cash-Out Refinance Guidelines

When people think of the real estate industry, they tend to think of one thing in particular – it’s complicated.

Most people don’t just pick up the phone and call a realtor anymore. There are digital middlemen in the real estate market, helping buyers search local listings and steering them to specific lenders. Such a homogenous approach would suggest that every transaction follows a similar pattern, and we all buy homes the same way and then faithfully pay down the mortgage.

The truth is, every agreement is different and every homebuyer has their own way of managing the debt burden associated with a home.  Many turn to government-backed loans if they’re unable to qualify for a loan another way.

The question is, what happens when it’s time to refinance a government-backed loan, especially if you’re looking to do a cash-out refi?

Here’s what you should know if you have a loan backed by Fannie Mae or Freddie Mac and you’re looking to cash out.

What is a Cash-Out Refinance?

Homeowners will often turn to the equity built up in their home when they need money.

One type of deal, specifically, will allow a homeowner to replace their existing mortgage with a new loan for more than they currently owe.  As Investopedia notes, the difference in those two amounts goes to the borrower in cash.

Let’s say that after years of monthly payments, you now owe $200,000 on your home mortgage. If the house is worth $350,000, you’ve built up approximately $150,000 in equity (which will increase as you pay down your principal, or if the property’s market value rises).

If you wanted $25,000 out of the cash-out refinance, your new loan would be for $225,000. Your new mortgage would marry the $200,000 balance that remained on the original loan and add on the $25,000 to be cashed out.

Cash-Out Refinance With Freddie Mac

The official line on The Federal Home Loan Mortgage Corporation, aka Freddie Mac, is that it’s a government-owned corporation and a cornerstone of the mortgage market. Its mission is not to make loans directly to homebuyers, but to purchase loans from lenders to replenish their funds. In turn, those lenders make loans to other borrowers.

According to the Home Buying Institute, Freddie Mac is one of the key players in the secondary mortgage market. As the name implies, the secondary market does not involve direct-to-consumer loans. Instead, the lending is structured in a way that makes loans more affordable to the average American. The country relies on Freddie Mac not only to support the nation’s homebuyers but renters as well.

Those with a government-backed loan from Freddie Mac not only have the option to refinance but to leverage home equity during a cash-out refinance.

Freddie Mac’s cash-out refinance option:

  • Allows the borrower to go through with a cash-out refinance as long as he or she has been on the title to the property for at least six months.
  • Allows a new mortgage to be structured for anyone with a minimum credit score of 620.
  • Allows all related closing and financing costs, as well as prepaid items, to be rolled into the new loan amount.
  • Allows borrowers with special circumstances to use cash obtained in a cash-out refinance to buy out the equity of a co-owner.

Cash-Out Refinance With Fannie Mae

The Federal National Mortgage Association, more commonly known as Fannie Mae, was established specifically to create a secondary market for the purchase and sale of mortgages.

This government-sponsored enterprise differs a bit from Freddie Mac, in that it buys its mortgages from different sources and has different qualifying guidelines.

Fannie Mae makes mortgages available primarily to less-qualified (low- and moderate-income) borrowers. In that sense, when it comes time to refinance – especially for those looking to take cash out on their home – there are different guidelines and a different system to adhere to.

Fannie Mae’s cash-out refinance option:

  • Allows qualification through a Desktop Underwriting system as of Dec. 8, 2018, to quickly determine whether a homeowner qualifies to refinance based on information provided.
  • Needs the homeowner to prove that he or she has the ability to cover at least six months’ worth of mortgage payments (or has six months of reserves) if their debt-to-income ratio (DTI) is higher than 45%.
  • Can be utilized if the property was acquired by the borrower at least six months prior to the date of the new mortgage loan (unless the property was acquired via inheritance or through a special circumstance such as divorce or separation)

Additional Refinance Requirements for Fannie and Freddie

If you’re interested in a cash-out refi, there are a few more things to know when it comes to Fannie Mae and Freddie Mac. Between them, they remain two of the largest financial institutions in the world, responsible for a combined $4.4 trillion in mortgage assets, according to Bloomberg News.  Despite this fact, many Americans don’t understand what Freddie Mac and Fannie Mae do for homeowners – especially when it comes to refinancing.

Those interested in a cash-out refinance should know that both agencies require at least 20% in home equity. If you’d rather look at an adjustable-rate mortgage (ARM), Fannie Mae requires at least 25% home equity.

It should be noted that these guidelines, among others, differ from programs that offer a no-cash-out refinance, such as the Freddie Mac Enhanced Relief Refinance (FMERR) and Fannie Mae’s High Loan-to-Value Refinance. Such options are for those who already owe more than what their home is worth and have been turned away by traditional lenders.

What to Know About Cash-Out Refinance

While it’s true that a cash-out refinance can provide a significant amount of money to a homeowner in short order, its risks can’t be ignored.

Because a cash-out refinance replaces your mortgage with a larger loan, it will come with a higher interest rate. In addition, things like homeowners’ insurance will be tied to the home’s value and your new loan. That means you’ll see a noted increase in such expenses if your cash-out refinance loan is significantly higher than your previous mortgage balance.

Finally, while it must be noted that you can use the proceeds of a cash-out refinance for any number of things, you should be smart about how you spend the money. Most people will use cash out for home improvement projects, which can increase the home’s market value. But others use it to pay off business ventures, other existing debt such as high credit card balances, or to lower education costs. In reality, other types of loans might be a better choice over using money from a cash-out refinance.

The best way to determine if a cash-out refi is right for you is to consult a lender and discuss eligibility requirements and any other concerns you have with cash-out refinance guidelines.

References

USDA Cash Out Rules & Guidelines

The United States Department of Agriculture, also known as the Agriculture Department, is commonly abbreviated by the well-known acronym USDA.

But Fannie Mae or Freddie Mac it’s not. At least where name recognition is concerned.

While this federal executive department is responsible for developing and executing laws related to everything from farming to food, it’s less commonly known as an organization that also backs mortgage loans.

It’s why some aspiring homeowners are surprised to learn that USDA loans are available for buyers with low and very-low-income and offer 100% financing and reduced mortgage premiums. What’s more, USDA loans also feature below-market mortgage rates and the option to refinance when the time is right.

Unfortunately, all USDA refinances are considered to be “rate-and-term” loans only and won’t advance any money in the deal, thus no cash can be “taken out.” However, there are a few situations where buyers may find themselves with cash in hand at the close of the transaction.  

About USDA Loans

The Agriculture Department backs home loans through its USDA Rural Development Guaranteed Housing Loan program.

Also known as the Section 502 Direct Loan Program, it assists low-income mortgage applicants in obtaining housing in eligible rural areas. However, certain factors are considered when determining eligibility, including an applicant’s income at or below the low-income limit for the area where they wish to buy the home.

Additionally, applicants must meet other criteria including:

  • Having a willingness and ability to repay the loan
  • Being unable to obtain a loan by other means
  • Occupying the home and using it as a primary residence
  • Meeting all basic citizenship requirements
  • Being without secure, decent, and sanitary housing at the time of application

What Are Some Other USDA Loan Basics?

What makes USDA loans different than other government-backed loans is that final determination of eligibility will be completely different. An initial tool used by the USDA looks at the overall composition of the household, monthly income and debts (more commonly known as the debt-to-income ratio), the property location, estimated property taxes, estimated hazard insurance, and more.

Fixed interest rates, when modified by the payment assistance provided with the loan, can be low as 1%, with a loan payback period of 33 to 38 years for very low-income applicants. Additionally, no down payment is required.

Can You Really Refinance a USDA Loan?

There are a few things you should know if you’re currently paying a USDA loan and looking to start the refinance process.

Not all mortgage lenders work with the USDA or have USDA loan approval. Furthermore, not all loan officers have the training necessary to originate such loans.

To make it easy, the USDA maintains a list of approved lenders on its website you can turn to. But to answer the question on whether you can really refinance a USDA loan, then the answer is yes … if you’re willing to follow the guidelines.

USDA Refinance Guidelines

They say imitation is the sincerest form of flattery, and in the case of USDA refinancing, they’re right.

The USDA’s refinance program was meant to mirror other streamlined programs from the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), and the HARP program from Fannie Mae and Freddie Mac, according to The Mortgage Reports.

There are currently three refinance options available:

  1. Non-streamlined refinance, which requires an appraisal. The maximum loan amount may not exceed the home’s new appraised value, plus the one-time upfront fee, known as the USDA guarantee fee (which is 1% of the loan amount). Applicants must also meet other terms and conditions.
  2. Streamlined refinance, in which a new appraisal is generally not required for existing borrowers. The maximum loan amount is structured so that it will not exceed the original loan amount at the time the home was purchased, with the exception of the upfront guarantee fee. Other conditions also apply, such as adding new borrowers to the refinanced loan (but existing borrowers on the old mortgage note may not be removed, and one must remain on the newly refinanced loan).
  3. Streamlined-assist refinance, which is said to be the USDA’s most popular refinancing program. Current eligibility requirements are more straightforward, outlining that the home must be the primary residence, have an original mortgage backed by the USDA, and a borrower who has already made 12 consecutive on-time payments at the time of application. Finally, the refinance must result in the mortgage payment decreasing by at least $50 per month.

How to Get Cash Out Of a USDA Refinance

As noted above, borrowers with a USDA-backed mortgage looking to refinance are not eligible to receive “cash-out” in the transaction. However, there is a bit of a loophole where that’s concerned.

According to the USDA, those opting for either a non-streamlined or streamlined assist loan may receive reimbursement at settlement. This would be the case if personal funds were advanced for eligible loan purposes, such as an appraisal or credit report fee. At closing, a portion of that “cash out” may be returned to applicants after final escrow and interest calculations are made.

Additionally, the USDA may allow cash out to fix up a home. Normally, the mortgage would cover the initial purchase of the home. Then, a refinance can be used (as long as there is equity in the property) to repair or remodel the property.

The above scenario might fall under the USDA’s construction financing, but there is a long list of restrictions that must be followed with this construction-to-permanent loan. The first part of the loan occurs during construction or renovation. The lender holds onto the funds in escrow, and the builders are paid as the work progresses.

Sometimes, there might be money left over from construction, but it won’t go back to the borrower. Instead, the lender must apply the cash to the principal of the loan. The only funds the borrower might receive back are reimbursements for any expenses that were paid out of pocket.

Every Refinance Situation Is Different

Remember, it typically takes between 30 and 45 days to refinance a home. That timeframe also applies to USDA-backed loans.

That’s according to Origination Insight Reports from Ellie Mae, which helps lenders originate mortgages.

While 30 to 45 days might sound like a long time, you can remind yourself that it’s a standard waiting period.

Being educated on the process, understanding eligibility requirements and double-checking your paperwork are just a few of the steps you can take to make sure everything goes as smoothly as possible.

You can also avoid closing delays by avoiding other things that could red flag the loan, such as changing jobs, opening new lines of credit, or making major purchases.

Above all, If you’re looking in an eligible area and you’re interested in a USDA loan, choose among USDA-approved lenders who can guide you smoothly through the process.

References

Cash Out Refinance After 1031 Exchange

Are you the owner of a multifamily housing unit?  An office complex? A trendy shopping center?

Valuable commercial real estate properties can present their owners with quite the predicament, especially if the market is hot and the owner/investor is looking to sell.

In the above scenario, you know what happens next — the business owner is typically hammered with a hefty capital gains tax bill upon the sale of the property.

Fortunately, commercial real estate transactions can effectively integrate with a beneficial tax law that allows business people to defer paying capital gains taxes. It’s called a 1031 Exchange, in reference to Section 1031 of the Internal Revenue Service (IRS) code.

What is a 1031 Exchange?

A 1031 Exchange, also known as a like-kind exchange, is a complex situation where real estate, taxes, contracts, finance, partnerships, and a number of other legal and business issues might all come together, and transactions can range from clean and manageable to unnecessarily complicated.

Simply put, the 1031 Exchange is a strategy used by taxpayers to defer capital gains taxes on the sale of a business or investment property. No gain or loss on the transaction is recognized provided that the property is exchanged solely for a property of a like-kind, which is to be held for the purpose of trade … or for investment, the code states.

The IRS says these exchanges have long been permitted under the Internal Revenue Code, as long as you make a like-kind exchange. Properties are deemed to be of like-kind if they’re of the same character or nature. This holds true to the IRS even if the properties differ in grade or quality.

For example, an apartment complex would generally be like-kind to another apartment complex. A warehouse can be exchanged for a warehouse. However, property in the United States cannot be part of a like-kind exchange with property outside the country.

Understanding Capital Gains

In order to fully understand like-kind exchanges, it’s essential to also have a working understanding of capital gains.

The definition of a capital gain (according to The Street) is: a type of income realized upon the sale or exchange of a capital asset.  

Capital gains tax is imposed by the IRS on the sale of certain assets, including commercial real estate. But typically, if you transfer property to another party as a like-kind exchange during the current tax year, you can defer the gain (or loss) on the exchange and must file IRS form 8824 with your tax return for that tax year. The filing requirement extends to taxpayers that are either an individual, a corporation or a partnership.

The key benefit of a 1031 exchange is that the investor is permitted to defer the capital gains tax payments that would otherwise accompany a conventional sale. But make no mistake, if you’re entering into a 1031 Exchange, you’ll want qualified intermediaries to provide sound advice and closing services. 

Refinancing and 1031 Exchanges

There are do’s and don’ts when it comes to refinancing a property that will likely be part of a 1031 Exchange. Most importantly, experts across the board are unanimous when it comes to offering advice about conducting such business: discuss your plans with your tax advisor(s) and don’t refinance “in anticipation” of the exchange. Above all, any refinance must be treated as an independent business purpose.

In dispensing such advice, the professionals at Investment Property Exchange Services, Inc. cite Fred L. Fredericks v. Commissioner (1994), in which one party refinanced a relinquished property a mere two weeks after effectuating a contract to sell and less than 30 days prior to the exchange.  The United States Tax Court was left to determine if the IRS was right to recognize any gain on the exchange and whether Fredericks was liable for paying tax.

In this case, the IRS used what is known as a step transaction doctrine to argue that the refinance proceeds should be considered taxable. But Fredericks prevailed when it was proved an attempt was made to refinance the property over a two-year period. The Court ruled the refinance had an independent purpose and the transaction was not made for the sole purpose of tax avoidance.

The lesson to be learned is that the IRS does not look favorably on a step transaction, which it sees as attempting to effect a favorable change to debt and equity numbers and leans toward tax avoidance.

Cash Out Re-fi After The 1031 Exchange

If you’ve fully invested in a 1031 Exchange, we’ve already reached the understanding that generating cash on or around the time of selling the relinquished property is discouraged and should not be pursued, as any sums paid at closing would be subject to tax.

As an alternative, refinancing the replacement property after the exchange is seen by many as the way to move forward. This should not result in any tax issues and experts suggest it will not jeopardize the tax deferral on the transaction. The logic is that anyone refinancing after a 1031 exchange retains the debt obligation on the replacement property as an offset to any receipt of cash.

A Final Word on Refinance and the 1031 Exchange

If you’re considering a 1031 Exchange and cash out refinance and still have questions, remember this — the IRS will look upon the transaction and scrutinize it effectively. They’ll be asking if the purpose was for a legal exchange under the 1031 code, or if your desire to cash out the equity of either the relinquished or the replacement properties was simply to avoid paying tax.

If government tax professionals conclude the latter and not the former, you might find yourself in U.S. Tax Court as well. However, if you follow this list as a rule of thumb, you should effectively be able to navigate the 1031 Exchange and subsequent refinance with no problems:

  • Always remember that any refinance transaction should be completely separate from the exchange or purchase transaction(s). This will support any argument that they were not interconnected. 
  • Relative to the advice above, the refinance should absolutely be documented as a separate transaction. The paper trail will help to avoid any question of whether the transactions were interconnected.
  •  Experts agree that is less risky (and a better business objective overall) to refinance the replacement property and not the relinquished property. This should be done through a separate post-closing transaction.
  • Finally, you should always be able to demonstrate a cash-out refinance (on either property) has an independent business purpose.

As a final note, it is incredibly important for taxpayers and those involved with a 1031 Exchange to carefully review the like-kind exchange rules and understand how these rules should apply to the unique set of facts and circumstances of the deal. It’s best in these cases to consult advisors and tax professionals so the transactions aren’t delayed and potential legal hiccups are avoided.

References

How to Take Equity Cash Out on a Co-Op

Co-ops, more formerly known as housing cooperatives, are an established presence in the U.S. housing market, providing a variety of household types across various income spectrums.

But in both urban and non-urban contexts, a co-op is still a co-op … is still a co-op.

As the Washington Post points out, a co-op is a multiunit building where a co-op ‘owner’ has an interest or share in the entire building, along with a contract or lease that specifies the owner of those shares has the right to occupy a unit within that building.

If you’re unfamiliar with where this explanation eventually detours (and how it differs from just about every other housing scenario), here’s a spoiler alert worth noting: a co-op owner (unlike, say, the owner of a condo) actually doesn’t own the unit they’re living in. Instead, residents are literally invested in the property. They pay monthly fees that cover a portion of the co-op’s expenses, such as mortgage payments, maintenance, and property taxes.

All of this leads to two key questions — how do you build equity in a co-op, and how do you take that cash out?

More About the Structure of Co-Ops

Living in cooperative housing has been likened to apartment living, but the truth is that co-op housing takes on many different forms. According to Realtor.com, co-ops can be:

  • Midrise or high-rise apartment complexes
  • Garden-style or outdoor-style complexes
  • Townhomes
  • Single-family homes
  • Senior housing/senior living communities
  • Student housing
  • Mobile home parks

The residents within the co-op control the housing and (if applicable) all related facilities within the building or complex, says the National Association of Housing Cooperatives (NAHC). Typically, those residents make up a non-profit corporation, and each resident pays a fee to cover their portion of the operating expenses. In return, co-ops generally see lower turnover (vacancy) rates, lower real estate tax assessments (in some areas), controlled maintenance costs, and more.

But … What Do You Actually “Own” in a Co-Op?

The mortgage industry is a major financial sector in the U.S., with nearly $11 trillion dollars of mortgage debt outstanding on family residences in 2018, data from Statista shows.

Most people understand that a mortgage is a financial instrument that allows you to pay down your debt (the mortgage principal) each month, building equity in a home as each payment is made. But those involved in a co-op build equity a different way — as a shareholder, not as a mortgage holder.

Co-ops are collectively owned by their residents, who in turn are granted proprietary leases. That lease grants a resident the right to live in a unit and use all common areas and elements of the cooperative (according to a set of bylaws and regulations). Your equity comes from your buy-in, or shares, of the co-op.

To put it another way, since you are buying shares in a corporation rather than buying actual real estate, you might work with a type of loan known as a share loan, which is somewhat like a mortgage. It provides borrowed funds to buy the share(s). Monthly payments are then made on the share loan to the lender, with a monthly carrying charge (typically for maintenance and other necessities) paid to the cooperative.

Here’s the caveat when it comes to making money: In a co-op, any potential financial payoff will depend on the way the co-op is structured. 

The Market-Rate Co-Op Structure

According to NAHC, a market-rate co-op is the most popular type of co-op. This structure allows you to buy or sell shares “at whatever price” the market dictates.

If you’re really all-in on a cooperative, you need to understand that the market rate prices can fluctuate, and will depend on things like housing market conditions and interest rates. In other words, significant gains and losses are possible.

It’s for this reason, and this reason alone, that you understand the nuances of a co-op before getting involved in one.

The Limited Equity and Zero Equity Co-Op Structure

Unlike market-rate co-ops, limited-equity co-ops are typically structured to preserve affordability for those with low-to-moderate-income who are seeking affordable housing. According to Shelterforce, an independent and non-academic publication, shares in limited-equity co-ops, more commonly known as LECs, have a cap on how much equity someone can earn in their unit (which means they can’t sell their share for a large profit).

This type of structure is designed to keep co-op communities affordable.

Finally, in a zero-equity co-op, members do not accrue any financial equity in their units, but in turn, pay rental rates below market value. This is also called a leasing cooperative, since the cooperative corporation leases the property from an independent investor. Since there is no real estate owned this way, the cooperative cannot build up equity (the same way a renter can’t build up equity).

Getting Cash Out On a Co-Op

Understanding the intricacies of equity and co-ops is incredibly important before you ever invest in one. That’s because if you’re looking to take cash out on a co-op, your choices are limited.

Experts say you can turn your co-op equity into cash by applying for a home equity line of credit (HELOC). In essence, it would allow a co-op shareholder to treat their unit like a credit card, getting instant access to money and using it to make improvements in the property or consolidate debt.

Some co-ops don’t allow HELOCs, according to Habitat Mag, but many also grant approval and don’t need to know what the money is for. However, such deals can limit the amount being borrowed to a certain percentage of a unit’s appraised value.

Your other choice to get cash out is selling your co-op, which presents its own unique set of challenges because the unit is part of a much larger building or complex. That means the other inhabitants, the co-op board, and the building will all factor into the sale one way or another.

Before you can even begin the process of selling a co-op, you’ll need to check with the board of directors and get more details on the procedure. In some co-ops, shareholders are required to sell the unit back to the corporation at the original price, with all the stockholders sharing in the profit when the unit is resold. In other co-ops, you get to keep the profit. 

No matter what, you’ll need the necessary forms and board approval to move through the process. This can create a significant delay between the signing of a contract and the close of the transaction.

A Final Word on Buying into a Cooperative

Investing in a housing cooperative means you are buying a share of a corporation that owns real estate.  Do your homework and your due diligence and investigate the building, the unit, and the corporation’s fiscal health. Your main objective should be a clear understanding of your obligations, and of the rules and regulations of the co-op community. This way when it comes time to cash out, you’ll have the patience and common sense to guide you through a successful deal.

References

Cash-Out Refinancing With Bad Credit

When you have a poor credit history or a low credit score, it can impact you financially, mentally, and emotionally.

Not only can a low credit score prevent you from being approved for further credit, but it can make it infinitely harder to get approved for a mortgage or mortgage refinance. Often times, it’s a red flag to lenders that you’re a high-risk borrower and you might not be able to pay back the loan.

With a poor credit score, you might even think that obtaining a mortgage or refinancing one simply isn’t an option.

The good news is there are options out there to refinance your home with bad credit, including one that might be the best fit for your situation — cash-out refinancing.

What is Cash-Out Refinancing?

Most people know that a mortgage is a type of loan specifically used to ‘pay’ for a home or another type of property. They’re offered by banks, financial institutions, and private lenders and often backed by the U.S. government.

Many people — especially first-time homebuyers — opt for government-backed loans because they’re more affordable, offer lower interest rates and are usually much easier to qualify for than conventional loans.

Consequently, many homeowners later look to refinance and obtain new loan terms down the road. (And yes, you can definitely refinance a government-backed loan, according to the Federal Housing Administration’s own handbook).

A ‘cash-out refinance’ is used to facilitate a brand-new mortgage that converts your home’s equity into cash. You simply take the current amount still owed on the loan, plus the amount of cash you’d like at closing, and combine them. That total, once approved, is your new mortgage principal.

What is a ‘Bad’ Credit Score?

When you apply for credit or a new loan, banks and lenders need a way to determine whether or not to let you borrow that money. In the U.S., the three national credit bureaus (you likely know them as Experian, Equifax, and TransUnion) compile, update and report on your credit history. From there, A FICO Score emerges, which is a three-digit number based on the information from those three bureaus.

Your FICO/credit score helps lenders to make a decision on how likely you are to repay a loan. It will ultimately affect how much you can borrow, the time you’ll have to repay the money, and the interest rate (or how much it will cost you to borrow, overall). 

Your credit score can range from 300 to 850, with a score between 300 and 579 considered to be very poor. A score between 580 and 669 is considered fair, and a number falling between 670 and 739 is good. Very good to exceptional scores run from 740-799 and 800 to 850.

Bad Credit? Here’s How You Can Still Qualify For A Cash-Out Refi

Borrowers with poor credit can still obtain home loan refinancing. In fact, Experian says a cash-out refinance might be a better option for homeowners with bad credit. Here’s why:

  • Any cash-out refinance replaces the existing mortgage loan, thereby satisfying the original mortgage. While not quite a gold star on your credit report, it still earns solid remarks.
  • Because lenders are facilitating a new mortgage, they are the first party lien holder. In the event you default, they have means to recoup their investment.
  • The cash-out deal also sets money aside that homeowners can use to pay off other existing debt, such as a car loan or high-interest credit cards. Paying down debt and doing so on time only helps your credit score.

Criteria will typically vary from one bank or mortgage company to the next, but chances are that you can meet a lender’s minimum requirements to do a cash-out refinance.

Your Options for a Cash-Out Refinance With Bad Credit

There are a number of different options available if you’re looking to get approved for a cash-out refinance with bad credit. Unfortunately, a conventional loan is probably out of the question and off the table.  Instead, an FHA loan designed for those with fair to poor credit should be one of the products you’re looking at.

In order to qualify for an FHA cash-out refinance, borrowers need at least 20 percent equity in their home based on a new appraisal. (Again, equity, in this case, is the difference between the current value of the home and the amount still owed on the original mortgage).

According to updated FHA guidelines, applicants need to have a minimum credit score of 580 to qualify for an FHA cash-out refinance. However, most FHA- insured lenders set limits higher, since cash-out refinancing is also subject to a thorough underwriting process.

Additionally, documentation is required to prove that you’ve made on-time payments on your mortgage for a period going back at least 12 months, or since the time you obtained the loan, whichever is less. You must have a minimum of 6 months of payments made before you’re eligible to refinance.

Other options might include a cash-out refinance with Fannie Mae or Freddie Mac, but eligibility is also based on established criteria with the lender.

If you’re a U.S. military veteran and you’re eligible for VA financing, you may be able to negotiate a cash-out refinance of up to 90% of your home’s value — even if you have poor credit.

A Cash-Out Refinance With Bad Credit Is Not Impossible

If you have bad credit, there are steps you can take to get your score above a certain threshold and keep it there. Paying down debt is imperative, as the total amount that you owe — which includes mortgages, credit card bills, car loans, student loans, and other debts — is one of the major elements of how your credit score is calculated.

Another factor is your payment history, which is always given the greatest weight. Missing what would otherwise be an on-time payment by just a few days can label you as ‘delinquent’ and seriously impact your credit score.

If you’re serious about cash-out refinancing with bad credit, it’s best to find a financial advisor or licensed loan officer and look at your options and the credit requirements.  In most cases, it’s best to focus on building up your credit score before you attempt to refinance. Once you’ve done that, your process should be hassle-free and similar to applying for your original loan. You’ll find the lender you want to work with, make sure you fit their qualifications and apply. The goal is getting that closing disclosure that includes your new loan terms and the costs you need to cover. After that, it should be smooth sailing to your closing day.

References

Cash Out Refinance Equity Rules & Requirements

More than a decade removed from the financial and housing crisis of 2008, there remains a good deal of debate on its cause. Data most often compare the default and loss behaviors of conventional loans and rate refinancing during this time.

But dig deeper and there’s another factor involved — and it’s a big one.

Overall, the poor performance of cash-out refinancing, and loan refinancing in general, has been viewed as an important contributing factor. That point was raised in The Journal of Fixed Income Summer 2018, and cash-out refinance remains under the microscope to this day.

Here’s why:

Cash Out Refinance Before the Housing Crisis

The National Bureau of Economic Research said rising home prices and falling mortgage rates enhanced the allure of refinancing for millions of homeowners before 2008. At the same time, lenders weren’t just pushing a new, fixed-rate loan. They were also pushing homeowners to extract equity with a cash-out refinance, “increasing systemic risk” in the financial system.

We all know what happened after that. But how many of us know what the refinance equity requirements were like more than a decade ago when compared to those same requirements today?

To understand, you really need to focus on the loan-to-value ratio.

Understanding Loan-to-Value Ratio in a Cash Out Refinance

The loan-to-value ratio of a mortgage is one of the most important numbers in the entire transaction. Commonly called the LTV, it’s a number the lender will use to determine how much of a risk they’re taking on your secured loan.

Above all, the LTV also measures the relationship between your loan amount and the market value of your home.

If the lender offers a loan worth three-quarters of the value of your home, for example, the LTV would be 75%. As the LTV increases, the lender is facing a much higher risk if you fail to repay the loan.

According to Investopedia, an LTV of 80% or lower is considered good for a mortgage and provides the best chance of being approved, along with a better interest rate.

So, how does this equate with cash-out refinance equity requirements?

Cash Out Refinance Then …

A cash-out refinance is just one of the ways homeowners can take advantage of the equity (or the difference between the current value of a property and the amount owed on the mortgage) in their homes. But it was easier to get approved before 2008, and walk away with more money. That’s because the Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (or HUD), insured loans that exposed the government to potential defaults.

How? The FHA allowed homeowners to cash-out up to 95% of their home’s value at the time and had much less stringent underwriting requirements.

MarketWatch reported that the peak of cash-out refinancing came in 2005-06, as millions of American homeowners attempted to make a cash grab out of their home equity. According to Attom Data, some 16 million mortgages were refinanced in that time frame, and the dollar amount was stunning, sitting at $1.8 trillion.

In total, the same data sets show that $3.1 trillion in cash-out refinancing was approved for homeowners between 2005 and 2007 just before the housing crisis erupted.   

And Cash Out Refinance Now

In 2009, the FHA adjusted its limit for borrowers to reduce the prevalence of cash-out refinancing. It did so again in September 2019.

The latest modifications mean that FHA borrowers are now limited to a cash-out refinance loan-to-value ratio of 80%, meaning borrowers need to maintain at least 20% equity in the property based on a new appraisal. (In other words, on a home valued at $300,000, the maximum loan amount would be $240,000).

According to Lending Tree, there are also other guidelines to qualify for an FHA cash-out refinance. They include:

  • Providing proof that the property is your primary residence
  • Providing proof that you’ve lived in the home at least a year
  • Providing proof that all mortgage payments have been made on time
  • Having a minimum credit score of 580 (or, if have at least 10% equity in your home, your credit score can be as low as 500)
  • Having an overall debt-to-income ratio of 50% or less

Additionally, there are other FHA refinance limits that borrowers must adhere to.

How Other Cash Out Refis Compare

The FHA’s 80% loan-to-value ratio put it in line with the rules established by both Freddie Mac (the Federal Home Loan Mortgage Corporation) and Fannie Mae (the Federal National Mortgage Association) for cash-out refinancing.

Fannie Mae’s tighter cash-out refi guidelines and equity requirements are detailed in the comprehensive ‘Eligibility Matrix’, a system allowing lenders to quickly determine if you qualify for a mortgage based on the information you provide.

One of the things you should be aware of is the focus on debt-to-income cash-out refinances. If you’re applying for a Fannie Mae loan with a DTI of higher than 45%, you’ll need to prove you have the ability to cover at least six months of mortgage payments (commonly known as reserves). For example, say your monthly mortgage payment was $1,200, a common figure used by the Eligibility Matrix. You would be required to prove you have available assets totaling at least $7,200, which could be used to make a mortgage payment in the event of short-term income loss or another scenario impacting your finances.

Freddie Mac has comparable cash-out refinance guidelines, all meant to be prudent measures to protect both lenders and borrowers. Overall, the analysis of a borrower’s stable monthly income is considered integral to the overall qualification and ability to repay the mortgage along with other monthly bills.

For VA (military) borrowers, most lenders will cap the maximum loan amount to 90 percent of home value, regardless of any VA limit.

Finally, some borrowers might opt for a conventional cash-out refinance (or a non-government backed loan). Anyone with at least a 620 credit score and DTI  below 50% stands to qualify, but generally, the 80% LTV ratio/20% equity rule applies.

A Final Word on Cash Out Refinance

As The Washington Post reports, cash-out refinancing has once again become incredibly popular, buoyed by rising home values and falling mortgage rates. In fact, the newspaper says FHA-cash out refinances increased by 250% between 2013 and 2018.

While a cash-out refinance allows you to access a large sum of money without selling your home, it won’t let you avoid closing costs, which will be similar to those tacked on to your original mortgage (usually 2 to 5% of the home’s purchase price).

If you can accept a limit on the amount of money you can borrow and you understand that the interest rate for your cash-out refi will likely be higher than your original mortgage, this type of loan might be worth looking into. Just remember — a cash-out refinance replaces your current mortgage with a new loan for more than what you owe. That means cash-out refinance equity requirements are largely for your own good, to ensure you still have some equity in your home.

References

How Cash Out Refinance Rates Work

Most people tend to refinance their mortgages when interest rates fall, with the potential monthly savings to the average homeowner serving as an enticement and temptation to play ‘let’s make a deal’ with lenders.

In fact, an estimated 9.4 million borrowers were recently projected to save an average of $272 per month with a typical mortgage refinance, according to data compiled by analytics company Black Knight.

The difference is knowing that these calculations have been made for straight home refinancing, and there are plenty of homeowners looking at alternatives — including cash-out refinancing. It all comes down to those who have sizeable equity in their homes and could potentially use lower rates to take cash out.

Of course, there are rules when it comes to tapping that home equity and a need to understand just how cash-out refinance rates work.

Cash-Out Refinance – What It Is and What It’s Not

A cash-out refinance is not like a home equity line of credit (HELOC) or a home equity loan. Instead, a cash-out refinance replaces your existing mortgage with a brand new loan — for more than you previously owed.

According to Zillow, the ‘cash-out’ portion of the deal takes place when you agree to pay more than your original mortgage amount to liquidate some of the equity in your home.  In other words, you use the equity you have in the property to obtain cash, with the deal adding to the principal of your mortgage.

Confused?

Let’s say that you own a home currently worth $250,000 and owe $170,000 on your mortgage. You decide to apply for a cash-out refinance and ask your lender for $40,000.  Your new mortgage principal would be for $210,000, and you get the difference between the old principal and the new principal in cash after closing.

Why Cash-Out Refinance Is Attractive to Homeowners

Millions of borrowers are always looking to save big on a mortgage refinance, and a large amount of equity in a home can make the deal even more attractive. In fact, CNBC said homeowners had a collective $6 trillion in home equity as of January 2020.

The CNBC report said borrowers have also been conservative about tapping into the equity in their homes, in large part due to the housing crash that defined and reshaped the last decade. The business news channel reported that just $54 billion in equity was withdrawn in the first quarter of last year, the lowest volume in quite some time.

According to Credit Karma, some people use the money from a cash-out refinance to invest in home improvements. However, others use it to consolidate high-interest debt such as personal loans, auto loans, and credit card loans.

How Cash-Out Refinance Rates Really Work

Remember how most people tend to refinance when interest rates fall because they’re looking to save money?  A cash-out refinance typically carries a higher interest rate than a straight home refinance for a number of reasons:

– When you structure a cash-out refinance, your lender is assuming more risk because your new loan is more than what you previously owed. It’s hard to quantify what a change in your rate might look like vs. a friend or neighbor, but a lender should be able to give you an idea when you shop for a loan.

– Risk-based mortgage pricing (or the underwriting of your new loan, according to Investopedia) is the practice in which the lender presents your new loan terms and conditions. For each applicant, it’s based on the lender’s assessment of their level of risk in extending a cash-out refinance to a borrower.

– Lenders will gauge the risk involved that any borrower might default or become delinquent on a loan, and a cash-out refinance doesn’t change that. Even if your original mortgage was paid on-time and in good standing, a lender will do their homework when it comes to assessing your current financial state.

Above all, you need to make the decision on whether you’re willing to pay a higher interest rate for the privilege of tapping the equity in your home. For some homeowners, the higher interest rate isn’t enough to stop them from refinancing, but for others, it can be a dealbreaker.

The 80% Rule on Cash-Out Refinance

It used to be that the limit on a cash-out refinance was set at 85% of a home’s value; before 2009 borrowers could even structure a cash-out refinance up to 95% of the value.

Not anymore.

Lenders got wise to cash-out refinancing being used to fund luxury vacations or buy fancy cars. Now, the Federal Housing Administration (FHA) and others have adjusted limits and changed the rules on how much of your home equity can be spent (and in some cases, what you can spend it on). The new way of doing business is meant to be a safeguard for borrowers if home values drop.

On Sept. 1, 2019, the FHA began limiting cash-out refinancing to a maximum of 80% of a home’s value. For example, for a home valued at $500,000, the maximum loan amount would be $400,000. According to The Washington Post, those limits now match those of Fannie Mae and Freddie Mac for conventional cash-out refinancing.

The lone exception to the rule is doing a cash-out refinance with a VA loan, which doesn’t typically require you to leave equity in your home.

You’re Ready to Pursue Refinancing. Now What?

Cash-out refinancing has become incredibly popular in recent years, with the FHA reporting a 250% increase in cash-out refinancing between 2013 and 2018. A recent article in Forbes reemphasized the wave of popularity in refinancing, but borrowers should know what they’re getting themselves into.

The type of property you’re looking to refinance will impact the rate you receive, the Forbes article noted, with a primary residence getting the best rate. Secondary homes and rental properties get a second-best and third-best tier of rates, and expectations should be tempered accordingly.

Above all, don’t rush off to the bank and ask about a cash-out refinance rate just because current rates are low. You’ll get the best shot at a favorable rate by getting your financial ducks in order before you apply. That can include paying down smaller, revolving debts and boosting your credit score. Also make sure you have financial documents and bank statements available to show a lender you can meet common cash-out refinancing requirements.

If you’re truly considering a cash-out refinance, remember that it can be a great opportunity to leverage your home for cash . If you’re not sure cash-out refinancing is right for you, it’s best to speak with a financial advisor or a loan expert to learn more.

References