What ’ s the point of a cashout refinance ?
Considerations before cashout refinancing
• You can ’ t tap 100 percent of your equity : Most lenders require you to maintain at least 20 percent equity in your home in a cashout refinance . One exception is a
VA cashout refinance , which allows you to withdraw all of your equity .
• You could end up with a very different loan : Since you ’ re replacing your existing mortgage with a new loan , the terms of the loan could change . For instance , you might have a higher or lower interest rate ( and monthly payments ), or a longer or shorter loan term .
• You ’ ll need to have your home appraised : Lenders typically require an appraisal for conventional cashout refinances , since the amount you can borrow depends on how much equity you have .
• You ’ ll pay closing costs : Like with your first mortgage , cashout refinances come with closing costs , which cover lender fees , the appraisal and other expenses . It ’ s important to consider what a cashout refinance could cost you because the fees might not be worth it , especially if you ’ re not borrowing a large amount .
• The cash won ’ t land in your bank account right away : Lenders are required to give you three days after closing to
back out of the refinance if you want to . For this reason , you ’ ll need to wait a few days before you receive the funds .
How much money can I get from a cashout refinance ?
While lenders typically allow homeowners to borrow up to 80 percent of the home ’ s value , the threshold can vary depending on your credit score and type of mortgage , as well as the type of property attached to the loan ( for example , a singlefamily , duplex or three or fourunit property ). Lenders who offer loans insured by the Federal Housing Administration , or FHA , sometimes offer an FHA cashout refinance that allows you to borrow as much as 85 percent of the value of your home . As noted , cashout refinance loans guaranteed by the U . S . Department of
Veterans Affairs ( VA ) are available for up to 100 percent of the home ’ s value .
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What are the fees for a cashout refinance ?
Expect to pay about 3 to 5 percent of the new loan amount for closing costs to do a cashout refinance . These closing costs can include lender origination fees and an appraisal fee to assess the home ’ s current value . Shop around with multiple lenders to ensure you ’ re getting the most competitive rates and terms .
Shop around with multiple lenders to ensure you ’ re getting the most competitive rates and terms .
You might be able to roll the loan costs into your new mortgage to
avoid upfront closing costs , but you ’ ll likely pay a higher interest rate . Plus , taking out another 30 year loan or refinancing at a higher interest rate might mean you pay more in total interest . Crunch the numbers with Bankrate ’ s
refinance calculator to gauge whether the math works in your favor .
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