Cash-out refinancing is a type of loan used to cover needed home repairs, pay down debts, or fund other major life expenses such as college. Your cash will come from borrowing against the equity that is currently in the home you own. It is important to learn the best time and way to use cash-out refinancing. In this week’s post, Professional Mortgage Solutions in Rego Park, NY helps local homeowners understand the process of cash-out refinancing.
Understanding the Process of Cash-Out Refinancing
It is important to understand that using cash-out refinancing can result in a larger mortgage and new loan altogether. If your home has gained in value and has a decent amount of equity, you can borrow against this to benefit yourself financially and take care of expenses. Imagine you have paid off $100,000 your home and it is now valued at $300,000—you can pull out the equity in the home to use as cash.
Why Choose Cash-Out Refinancing?
Homeowners will typically use cash-out refinancing to pay for needed home repairs or other debts owed such as student or credit card debts. Sometimes you can even use the funds for home repairs and then qualify tax deductions on the dollars you invested in your home. Perhaps you have a child ready to go to college, and you’d rather use the loan from your home instead of getting them into student debt. This is another reason people choose to use cash-out refinancing.
Reasons not to Use Cash-Out Refinancing
Using cash-out refinancing can be a risky decision, while there are many benefits, you must also weigh the costs. For starters, you are taking out the equity that you have already invested in your home, essentially converting assets to debts. In addition, there will be closing costs for the new loan. Your monthly payments may go up after closing. Be sure that you will get a good rate when you use cash-out refinancing. Perhaps you can obtain the cash you need using a cheaper financing mechanism. Run the math to make sure that using this type of loan is the best plan.
Applying for Cash-Out Refinancing
Understanding your credit score and the impacts to it is essential for applying to and qualifying for cash-out refinancing. Here are some of the factors lenders review when looking at applications:
- They will review the loan-to-value, which cannot exceed 80% of the value in your home. This rate may be less if you are looking at refinancing a second property.
- They will review your credit score. Many indicate you will need a score of at least 620 or more to qualify.
- They will ask for your income and financial documentation as well, so be sure to gather everything.
Professional Mortgage Solutions can help answer your questions about using a cash-out refinance loan in Rego Park, NY. Contact our offices today!