Cash Out Refinance
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What is a Cash Out Refinance? |
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Cash-out refinancing - The Basics
What is a cash-out refinance?
A cash-out refinance is when you payoff your existing mortgage with a bigger mortgage, and receive the difference in a lump sum payment of cash. You can use the funds for virtually any purpose, such as paying off credit card balances, home rennovations, educational expenses, and other things that come up in life.Cash-out refinance example
Your home is currently worth $600,000 and you still owe $200,000 on your existing mortgage. In a cash-out transaction, you could refinance into a $250,000 mortgage which would pay off the old $200K mortgage, leaving an extra $50,000 that you could take out as a lump sum cash payment.
Do I qualify for a cash-out refi?
General eligibility requirements
Eligibility for a cash-out refinance depends each lender. But, you'll need to generally meet the following requirements:Cash-out refinance requirements
- Credit score: You'll generally need a credit score of at least 620 to qualify. A higher credit score will get you better rates.
- Equity: You need at least 20% equity in your home.
- Debt-to-income ratio (DTI): A DTI of 45% or less is favorable to lenders.
- How long you owned the home: You need to have owned your home for at least six months.
- Additional requirements: As with any mortgage, you'll need to meet other requirements (income verification, home appraisal, etc)
Common uses of cash-out refi money
Some reasons why people get a cash-out refi
While you can use a cash-out refi for almost any purpose, many people use the funds for common expenses.You can use the money from a cash-out refi for:
- Debt consolidation: Paying off high-interest debt like credit cards. The cash-out refi mortgage is usually at a much lower interest rate, resulting in a lower overall monthly payment.
- Student loans: Paying off student loans. You might qualify for special lower rates if using a cash-out refi to payoff a student loan.
- Home improvement and rennovations A kitchen or bathroom remodel project, putting an addition on to your house, new flooring, etc.
- Purchasing other real estate For those with enough equity in their primary home, the proceeds of a cash-out refinance could be used to purchase yet another property.
- Business expenses Starting up a business can require a significant investement, and some use a cash-out refi to finance their business.