A traditional mortgage refinance is when an existing loan is replaced with a new loan and a new set of terms, in many cases with a lower interest rate. A cash-out refi replaces your existing mortgage just like a traditional refi, but the homeowner gets cash distributed. It also differs from a home equity line of credit which allows you to borrow cash using the equity of your house but it functions as a second mortgage. Common reasons to go with a cash-out refi are:
- Paying off Credit Cards
- Financing a Business
- Covering College Tuition
- Managing Unexpected Expenses
- Making Improvements to your home
- Taking advantage of potential tax-deduction benefit from interest paid on loan
Using the equity of your home is a great way to access cash when you might need it for something else that comes up. However, having goals for what you are going to be spending that money on is the most important thing you can do to set yourself up for success. For example, going and using that money to purchase a brand new luxury vehicle might not be the smartest decision, but using that money to pay off other debts could be extremely beneficial.
Conventional Cash-out: This is available to qualified homeowners who have more than 20% equity in their homes.
FHA Cash-out: Is available to homeowners who have more than 15% equity in their homes.
VA Cash-out: Is available to homeowners who are US Veterans or currently an active service member. Often a VA Cash-out allows you to use even more of the equity from your loan.
Do you have enough equity in your home?
Maximum loan to value (LTV) ratio for a conventional and FHA range from 70% to 85%, as for VA the maximum is 100%. This means you will need more equity in your home to have a larger amount when cashing out from the refi.
Does it affect my monthly payment?
Cash-out refi does increase the total loan amount so your monthly payments will often increase as well.
Can an FHA loan be eligible for cash-out refinancing?
Yes, if you have an FHA insured mortgage you may qualify, but refinancing into a conventional loan may be better because it does not require mortgage insurance.
What are my options as a US veteran?
As a US veteran your cash out options may be eligible as a cash-out refinance with great rates and the flexibility to borrow up to 100% of the total value of your home. Are there any additional costs when cashing out? Yes, when you refinance there are closing fees that you will be responsible for. These costs can also include escrow fees, an appraisal, and upfront private mortgage insurance fees.
Am I required to have mortgage insurance?
- Conventional loans – No
- FHA loan – Yes, you will pay an up-front and annual insurance.
- VA loan – Yes, you will pay a funding fee.
What are the requirements for a cash out refi?
- Pay Stubs
- Tax returns/ W-2s /or 1099’s
- A Credit Report
- Bank Statements
Now that you know all of the benefits of Cash Out Refinancing, give us a call and we’ll walk you through the process to get started.