Cash-out Refinance Guide


Closing your Cash-Out Refinance

You will be able to repay the old loan through cash-out refinance and get cash at the same time. Refinance is a type of mortgage that is paid on your home equity and you will be given a check at closing. The cash you get from a new loan is bigger than the old loan and any kind of closing costs are rolled out in the loan.

There are no restrictions on where and for what purpose you make cash. With cash, you can cover the biggest expenses as well as repair or renovate your home.

Who is the investor of my loan?
The investor of your loan is usually determined by the type of loan you’re getting. For FHA loans, the investor is the Federal Housing Administration. For VA loans, it’s the U.S. Department of Veterans Affairs. The investors for conventional loans are usually either Fannie Mae or Freddie Mac – two government-sponsored enterprises that were created to stimulate the housing market.

Cash-out refinancing and home equity

You must have sufficient equity available in your home to qualify for cash-out refinance. You will receive cash against the equity available in your home.

For example, the current value of your home is $ 200,000 and your existing mortgage is $ 100,000. Then the equity available in your home is $ 100,000. Since you can borrow 80% of the available equity, your cash balance will be $ 60,000.

The equity available in your home after refinancing must be 20%. So you will be given a check for $ 60,000 after paying off your old mortgage but this does not include closing costs. Closing costs are 2% to 6% of your loan amount that is rolled into debt.

Cash-out refinance requirements
To qualify for a cash-out refinance, you need to meet the usual requirements, including your finances, assets and your credit card.The requirements vary depending on the type of loan and the lender. However, here are some requirements that are required for all loans.
  • You need to have more than 20% equity available in your home.
  • Your home will be evaluated by an appraiser.
  • Your credit score must be at least 620.
  • Debt-to-income ratio must be 43% or less.
  • Loan-to-value ratio must be 80% or less.
  • You have to give the history of income and employment.
How much does an appraisal cost?
Most appraisals cost between $200 and $600, but keep in mind that the cost can exceed that range.
The cost of an appraisal varies based on the type and location of the property. Your appraisal may cost more if you have a multiunit property instead of a single-family home, for example, or if you live in a remote area.
Types of cash-out refinance loans
There are three main types of cash-out refinancing for homeowners.
  • Conventional loans: You must have a minimum credit score of 620 to qualify for a conventional loan. You can withdraw up to 80% of the equity available in your home.
  • FHA loans: You must have a minimum credit score of 580 to qualify for an FHA loan. You can borrow against a maximum of 80% of your home equity. Since this is a new mortgage, you need to pay upfront costs and annual costs.
  • VA loans: VA loans lend to eligible military borrowers. If you are a qualified military borrower, you will get a loan against 100% equity of your home. But some lenders offer loans against 90% of the equity available at home.

However, which loan is right for you depends on the equity available in your home, your situation, the amount of the mortgage and your eligibility.

The cash-out refinance closing process

Cash-out refinance closing process is similar to other conventional cash-out refinance closing process. However, you need to know a few things about the closing of cash out refinance.

  • Since this is the biggest loan, you will definitely want the best deal. So shop with multiple lenders for the best interest rates and terms.
  • Then select an acceptable lender and apply for refinancing.
  • Then provide the required documents such as your bank statement, pay stub and W-2 form.
  • Evaluate your home by the appraiser, then you will be able to estimate the exact value of your home.
  • Documents are important, because the loan underwriter will consider your documents and approve you for the loan.
  • The last step in closing is to sign the closing page and get the check during closing.

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