When you read through the requirements of an Arizona mortgage cash-out refinance, equity will be at the top of the list, next to a good credit score and a low debt-to-income ratio. The entire idea of getting cash out to refinance is based on a home’s equity. This is why cash-out refinance is described as tapping into your equity.
To get a cash-out refinance, you must have built up some equity. When you take a cash-out refi, the money that the lender gives to you is a fraction of the equity. Let’s use this example to have a better understanding of how important equity is.
Example
Currently, you own a home that has a value of $200,000. So far, you are only left with a mortgage loan balance of $120,000. This means that you have built equity worth $80,000. With a cash-out refinance, you tap into your equity. With a loan balance of $120,000, you can get a refinance of $140,000 and have the $20,000 difference paid to you in cash.
From the above example, you will have tapped into a percentage of your equity which stood at $80,000. Most lenders can only agree to you taking up to 80% of the home equity. Therefore, if you want to maximize on a cash-out refi, you can take around 80% of $80,000, which would be $64,000.
When you approach a lender and request for an Arizona mortgage refinance, the first thing they will look at is how much equity you have. Homeowners can also determine how much equity they have using our refinance mortgage calculator in Arizona.
Homeowners that have accumulated enough equity can cash out a significant lump sum of money. However, if your equity is still small, it won’t make sense to take a cash-out refi since most of the funds will be eaten up by closing costs.
It’s also important to remember that one must at least leave behind 20% equity. With the help of our refinance mortgage calculator Arizona, you should find out whether you have built enough equity needed for a cash-out refi.
A cash-out refinance is undeniably more appealing than credit card loans. Not only do you get paid in cash, but the rates tend to be much better than other types of loans. Even though there is no restriction on how to use this money. It’s crucial that the money borrowed from your equity be used in a valuable investment such as home improvement, debt consolidation, and college tuition.
Final Thoughts
Equity is the heart of a cash-out refinance. Without equity, homeowners can’t qualify for this type of mortgage. If you have been considering tapping into your equity, after knowing how essential it is, you need to ensure that you utilize it carefully.