What is a Cash-out Refinance?

What is a Cash-out Refinance?
Cash-out refinance is one of the benefits of building home equity. A home can be considered an investment in different ways. It’s not only a safe haven but some of its components, such as equity, can be used to settle various financial goals. A cash-out refinance can be the solution to paying for tuition, home remodeling projects, and even debt consolidation. It’s a much better alternative to personal loans or credit cards.   

An Overview of Cash-out Refinance

This type of mortgage replaces the current home loan with a more significant one. And here is the catch; the difference between the old loan and the new one is paid to the homeowner in cash. The homeowner can then use these funds for a wide range of expenses.  The more a mortgage matures, the more equity a homeowner builds. Equity can be defined as the amount of your home you truly own (the amount you have already paid off). Equity is built through the monthly payments you make on your loan and an increase in the value of your home.  Cash-out refinance leverages this equity you have accumulated through the provision of a larger mortgage. In short, if you opt for cash-out refinance, you will borrow more than you owe on your mortgage and pocket the excess funds in cash.  One of the perks of a cash-out refinance is that it doesn’t add an extra monthly payment. It is more of a replacement of the old mortgage, which comes with an additional lump sum of money you can use for home renovations or other projects you have been planning on.  Let’s use this example; you bought your home for $200,000, and so far, you have managed to pay $80,000. That means you still owe $120,000. With cash-out refinance, you can get a bigger loan of $150,000. From this amount, the $120,000 will refinance the mortgage, and you will get $30,000 in cash after closing. You can get a cash-out to refinance of up to $200,000 for the same home or even more if the property values have increased. However, mortgage lenders often require you to put up some equity, and therefore, you may not get to cash out the entire equity.   

The Requirements for Cash-out Refinance 

Even though these requirements vary from one lender to another, there are certain aspects that you have to meet to qualify for a cash-out refinance. They include; 
  •   Debt-To-Income Ratio – This is what lenders use to determine risk. A DTI is the percentage of your income used to pay off debts. Low DTIs are more attractive to mortgage lenders. The highest DTI for cash-out refinances usually doesn’t exceed 45%. 
  • Credit Score – Having a good credit score will always open your doors to more financial opportunities. In this case, a good credit score will qualify you for a cash-out refinance. 
  •   Home Equity – This is a must-have requirement. When it comes to cash-out refinances, homeowners often borrow from their equity. Therefore, the more equity you build, the more funds you can access through this type of mortgage. 
  A cash-out refinance is a powerful tool that can help you achieve several financial goals. Whether you want to pay for your child’s tuition or have been considering renovating your home, you can use the equity you have built to get a bigger mortgage. Provided you have met the above requirements. You can qualify for a cash-out refinance loan

A Lending Hand for Financing Home Mortgages

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.

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