4 Things To Know About A Cash-Out Refinance
by Albane Francois
Has your home gone up in value and you're considering a cash-out refinance? Here are a few things to know about this refinance option to leverage the additional equity in your home.
You Won't Be Able To Cash Out The Full Value Of Your Home
Lenders will have a limit of how much they are willing to give you for a cash-out refinance. Typically, it is a percentage of the home's current value. For example, if you bought a home for $300,000 and it went up to $400,000, then you'd be able to get a cash-out refinance based on the $400,000 value. The lender may only give you 80% of the home's new value, and allow you to borrow up to $320,000.
You Can Use The Cash For Whatever You Want
One of the nice things about a cash-out refinance is that you are not limited with what you can do with the money. You don't even have to tell the lender what you will be doing with the money. You can use that money to pay off higher-interest loans, finance an investment, or even use the money to help pay for a vacation. While paying for that vacation may not be the best use of that money, you can do it if you want to.
You Still Need To Qualify With Your DTI And Credit Score
Your mortgage lender is still going to make sure that you qualify for your mortgage by checking things like your debt-to-income ratio, often referred to as your DTI. You may still have your mortgage and be able to afford it, even with taking on new debt since you acquired your mortgage. However, your lender is going to reassess your DTI to make sure that you still fall under their limits for how much debt you can have to take on a new mortgage. The same will also apply to your credit score if it changes over the years.
You May Need To Be In Your Home For A Minimum Amount Of Time
Be aware that your lender may not let you do a cash-out refinance unless you've been in your home for a minimum amount of time. Each lender is going to have their own requirements, but it could be as short as a year in most situations. This is to prevent someone from going through the refinance process too soon after purchasing a home.
For more information on real estate refinancing, contact a realtor in your area.
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About Me
How many times have you put off making repairs around your home because you didn't have the money to make them immediately? Have those decisions caused even more repair bills because you waited to make the repairs? I have done this several times in the past, and, oftentimes, not making those repairs have cost me far more to complete because the damage spread. The whole reason I created my blog was to help others find the financing they need to make home repairs without worrying about choosing the wrong type of financing option. Hopefully, my hard-learned lessons will help you avoid the same struggles that I have undergone.