Cash-Out Refinance: What it is and Who is Eligible?
Cash–out refinance means that you are interested in refinancing your mortgage for an amount larger than you presently owe. It gives you the opportunity to turn your home equity into cash. If you have $120,000 on your mortgage and you need $30,000 for personal use, you can refinance $150,000. Here you will have money for your personal use also.
Cash-out refinance is similar to a line of credit or a home equity loan. The only difference is that equity builds up as your house gains value. When you have gained enough equity, you can use it with the intention of paying it back. Cash-out refinance is associated with closing costs, but closing costs have nothing to do with home equity. The main purpose of cash-out refinance is to get the right to use the money tied up in your home’s equity.
Basic Features of Cash-Out Refinance
- It can be used for paying off other loans, meeting needs like home improvement or acquiring property.
- You can use cash-out refinance to combine debts.
- The upfront costs can be eliminated by including all the closing costs, financing costs and prepaid items into a new loan.
- 1-unit second homes, 1 to 4-unit investment properties and 1 to 4- unit primary residences are eligible for cash-out refinance.
- There is a provision of up to 90% loan-to-value for 1 to 2 unit primary residences or 1-unit second home special purpose for cash-out refinance mortgage.
The companies provide flexibility and diversity so you can meet your assorted needs. For maximizing the borrower’s cash flow, all the related financing costs, closing costs and prepaid items are turned into one new loan amount.
Utility of Cash-out Refinance
Higher the value of your house, the higher the cash out will be for other uses. Borrowers can use cash-out refinance from the value of their home for the purpose of remodeling, debt consolidation, etc. The proceeds of refinance can be used for special purposes like purchasing the equity of the co-owner.
Eligibility for Cash Out Refinance
- Eligibility for property types - 1 to 4 unit primary residence, 1 unit second home and 1 to 4 unit investment property.
- Eligibility mortgages - 15, 20, 30 years fixed rate advance and 3, 5, 7 years reset mortgages.
- Special underwriting requirements - New applications are required for this purpose and there are no restrictions as to change of borrowers. No asset documentation is required but authentication of assets is a must.
- Special requirement for special purpose cash-out refinance - The borrower purchasing out the equity of co-owner is a special purpose cash-out refinance, the co-owner and the borrower must have owned the property at least for 12 months before the loan application is filed. The property be owned as primary residence and no proceeds accrue to the borrower who has retained the single ownership of the property.
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