So today we’re going to discuss all things cash out refinance. What is it? How do I qualify? and How much can I take out? But before we get into the cash out rules, it’s important to understand the concept of equity and how you can leverage your home equity to achieve other financial goals.
So let’s start. With equity, as without it, a cash out refinance is not an option. Equity is why we buy real estate in the first place. We buy a home with the hopes it continues to appreciate or gain value over time. How do we determine what our equity is? So equity in a home equals the appraised value of the home minus what you owe on the home.
So let’s go over an example of how this works. For simple math, let’s assume you buy a home for a hundred thousand dollars and you put ten percent down on the purchase. If the home appraisal also came in at a hundred thousand dollars then you would start off with ten percent equity in the home. Ten percent down, you owe ninety percent of the value, so ten percent equity.
Over time you continue to pay down your loan and now you have a balance of eighty thousand dollars. Let’s say the value of the home has increased to 125,000 so now you have 45,000 of equity in the property. We did this with the value of 125 minus what you owe of 80,000. Your initial equity position of 10 has now grown to 36. So this increase in equity is what makes a cash out refinance possible in most situations.
You are paying off your current mortgage with a new mortgage at a higher loan amount. Your proceeds, or the cash back to you after everything gets paid off, will be the new mortgage amount. The higher amount minus the payoff amount for your current mortgage minus any closing cost for the loan.
Well that depends on what your goal is with the cash out. Some homeowners need funds to pay off credit card debt, student loan debt, equity buyout for a divorce, or maybe they just want to use the funds to purchase another property. This can certainly help someone into a better financial position, especially when paying off debt, but if someone just runs the credit cards back up again then you’ll quickly find yourself in a worse position than before the refinance and managing the same debt problem.
I think one of the most important steps that you can start with is figuring out exactly what do you need? How much money you’re going to need and what goals you want to accomplish. The best way to start a cash out refinance is to talk to a trusted mortgage advisor to walk you through different options that may be available to you.
Well remember earlier when we talked about that equity position? If you live in the home you’ll be able to get a new maximum loan amount of 80 percent of the new value assuming you still qualify for the likely higher monthly payment.
Remember in general you will be capped at 80 of your home value; however, there are certain loan programs out there that will limit how much cash out you can get as well. Again, talk to a trusted mortgage advisor who can guide you through these different options.
In general, the answer is going to be yes; however, there are certain ways we can structure refinances to pay low or no closing costs depending on your scenario.
Yes it’s your home! Of course you can sell it; however, there are different types of money available out there. Short-term financing and long-term financing. So be sure to talk through your goals with your mortgage advisor and figure out the best way to structure your cash out needs.
In general, a lender is going to require that we can verify stable employment before extending credit to you. A cash out refinance can be an excellent option to help you meet your financial goals. Be sure to reach out to us, or put your comments below if you have any further questions. We here at Spire Financial are happy to help you with any of your financial needs.
Spire Financial (A Division of V.I.P. Mortgage, Inc.) brings lending expertise to you. All of our loan officers offer personalized communication for every client, guiding them through the process. We can show you ways to maximize your finances and unlock future opportunities. Spire Financial keeps you in control of refinancing, debt consolidation, and home equity. Together, we can achieve your financial goals.
V.I.P. Mortgage, Inc. DBA Spire Financial does Business in Accordance with Federal Fair Lending Laws. NMLS ID 145502. For state specific licensing, visit www.vipmtginc.com/national-licenses/. V.I.P. Mortgage, Inc. is not acting on behalf of or at the direction of the FHA/HUD or the Federal Government. This product or service has not been approved or endorsed by any governmental agency, and this offer is not being made by any agency of the government. V.I.P. Mortgage, Inc. is approved to participate in FHA programs but the products and services performed by V.I.P. Mortgage, Inc. are not coming directly from HUD or FHA. Information, rates, and programs are subject to change without notice. All products are subject to credit and property approval. Not all products are available in all states or for all loan amounts. Other restrictions may apply. This is not an offer to enter into an agreement. Not all customers will qualify.