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Cash-Out Refinancing

Taking advantage of great rates can also put cash in your pocket. Cash-out refis are a great way to liquidate the equity of your home.

Are you looking to change the interest rate and terms of your existing mortgage loan? Mortgage refinancing is an excellent way to reduce your mortgage rate, switch from an adjustable-rate mortgage to a fixed-rate mortgage, and even refinance into a new loan program.

Along with these changes, refinancing also lets you pull cash from your home's equity. This is known as a cash-out refinance. Here’s how a cash-out refinance works, as well as information on how you can qualify.


How Does a Cash-Out Refinance Work?

Some people refinance their mortgage loans with the sole intent of reducing their mortgage rate and saving money on their monthly payment. This is a standard mortgage refinance known as a “rate and term” refinance. Tapping your home's equity and getting cash differs from a traditional or standard refinance.

With a cash-out refinance, you’re usually eligible to borrow up to 70% or 80% of your home’s equity. So let’s say you have $100,000 in equity. In this scenario, you might be eligible to borrow up to 80% of your equity, or up to $80,000. You can get a cash-out refinance with an FHA loan, a VA loan and a conventional mortgage loan. A cash-out refinance is not an option with a USDA refinance. These loans only allow rate-term refinances.

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How to Qualify for Cash-Out Refinancing

But, of course, having enough equity in your property isn’t the only requirement for a cash-out refinance. Although the value of your home affects eligibility. Keep in mind that refinancing creates a new mortgage loan. Therefore, you must submit a new home loan application and meet the minimum requirements for approval.

You need a minimum credit score of at least 580 for an FHA loan and 620 for a conventional loan. You must also have stable, reliable income, and enough assets to pay your closing costs.

Pros of a Cash-Out Refinance

Funds from a cash-out refinance can serve multiple purposes. For example, some people use funds for a debt consolidation. They take the proceeds and pay off any high-interest debt like personal loans and credit cards. This can save you a lot of money in interest in the long run. Or, you can put funds toward home renovations or home improvements and increase your property value. Some people even use proceeds from a cash-out refinance to pay for their child’s college tuition or meet other financial goals.

Cons of a Cash-Out Refinance

Understand, though, that a cash-out refinance replaces your original mortgage, and it also increases the total loan amount. Therefore, your monthly mortgage payment will likely increase. Also, if you reset the mortgage term for another 30 years, you could end up paying more interest over the life of the loan.

How to Apply for a Cash-Out Refinance

We’re committed to making home ownership affordable for our clients. Whether you’re interested in a rate-term mortgage refinance or a cash-out refinance, our loan experts can assist through every step of the process. Contact us to find a loan officer in your area. Learn how you can access the equity in your home.

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