Refinancing

What is a Cash-Out Refinance?

A cash-out refinance is a type of mortgage refinance that takes advantage of the equity
you’ve built over time and gives you cash in exchange for taking on a larger mortgage. In a more simple way of saying, you borrow more than you owe on your mortgage and pocket the difference.

You can gain equity in two ways:

1. Your home increases in value.
2. You pay down your mortgage principal through your monthly mortgage payments. Every time you make a payment, you gain a bit more equity in your home.

How Much Cash Can You Get On A Cash-Out Refinance?

The amount you earn on your refinance usually depends on your home’s value. Before
finding out how much you qualify for, you’ll need to have your home appraised. Lenders will normally let you draw out no more than 80% of your home’s value, this can vary from certain places and different circumstances. So be sure to ask your lender about this.

Just like applying for your initial loan, you’ll need to meet your lender’s standards before
you can qualify.

• Credit score. Refinances have a minimum credit score requirement that can vary by the loan type. Give your lender a call and ask what loan programs you qualify for, and what your best option is.
• Home equity. Your home equity is the percentage of the loan principal you have
  paid off. It is a good idea to wait to refinance until you have at least 20% equity in your home. It’s possible to refinance with a lower percentage, but you won’t have access to the most favorable interest rates. Your lender can help you with this.
• Debt-to-income ratio (DTI). Lenders have to consider your DTI ratio. Your lender will figure this out based on payments shown on your credit score VS your gross income. Lenders must have you under 50% DTI to consider continuing with a refinance.
• Closing costs. That’s right! Just like buying your home, there are closing costs. This can usually equal 2-5% of the principal balance. Ask your lender for an idea of what this number will be. They can give you a cost breakdown sheet.

Please be sure to provide:

• ID(s)
• 1 Month of Paystubs
• 2 Months of Bank Statements
• 2 most recent W-2s / 1099’s
• Any other documentation your lender may ask for (Especially if you are self-employed)

Contact a loan officer today, and we can help you break it down to see if this is a good option for you!