Cash Out Refinancing in 2023

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. 

So What is a Cash Out Refinance Loan?

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. 

Is a Cash Out Refinance a Good Idea?

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. 

What are the Steps to Start and Complete a Cash Out Refinance?

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.

How Do You Qualify for a Cash Cut Refinance?

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. 

How Much Can You Get on a Cash Out Refinance?

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.

Are There Closing Costs on a Cash Out Refinance?

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. 

Can I Sell My Home After a Cash Out Refinance?

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.

Can You Do a Cash Out Refinance Without a Job?

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.