Texas homeowners have seen their property values and equity balances swell enormously in recent years. This gives many the opportunity to tap their equity through a cash-out refinance.
But is this the right move for your situation? In this comprehensive guide, we’ll explain everything you need to know about cash-out refinancing including:
– Definition and details of a cash-out refinance
– When does it make sense to do a cash-out refi
– Amount of money you can withdraw
– The costs involved
– Step-by-step process to get started
Follow our advice to see if accessing your home equity could help your financial plans and cash flow needs.
What Exactly is a Cash-Out Refinance?
When you refinance your house using cash out, you take out a new mortgage with a larger loan amount. This converts a portion of your equity into spendable cash that is dispersed at closing.
For example, say your home is currently worth $300,000 and you owe $180,000 on your existing mortgage. That means you have $120,000 in equity built up.
You could refinance your mortgage for $240,000, taking the $60,000 equity difference in cash proceeds while keeping the same loan balance.
The cash can be used for almost any purpose like consolidating high-rate debts, funding home renovations, covering medical bills, or financing a dream vacation.
Determining Your Maximum Cash-Out Amount
The amount of equity you can convert to cash depends on your loan-to-value ratio (LTV) after refinancing:
– Up to 80% LTV allows you to cash out 100% of your equity
– 80-90% LTV allows you to cash out up to 15% of your home’s value
– 90-95% LTV allows you to cash out up to 10% of your home’s value
For example, if your home is worth $400,000, here is how much equity you could take at different LTVs:
– 75% LTV = $100,000 cash out
– 85% LTV = $60,000 cash out
– 90% LTV = $40,000 cash out
A mortgage broker can help determine your exact maximum cash-out amount based on your specific situation.
When Does a Cash-Out Refi Make Sense?
If used strategically, a cash-out refinance can provide financial flexibility and potential savings:
– Pay off higher interest credit cards, loans, etc. and consolidate into your lower mortgage rate
– Fund home improvement projects to increase your property value
– Access cash for major expenses without liquidating your other assets
– Lower your monthly costs by refinancing to a shorter loan term and lower rate
Of course, taking equity out does reduce the equity cushion you have built. So, you want to tap only what is needed strategically.
Cash-Out Refi Costs and Process
Closing costs are the main expense to consider with a Texas cash-out refinance. Typical fees range from 2-5% of your total loan amount. You can use some of the cash proceeds to cover closing costs.
An appraisal is also required to verify the home’s value is sufficient for the LTV ratio needed. And your new loan amount and income must still meet qualification guidelines.
Connecting with an experienced mortgage broker like ZAPA Mortgage can determine if a cash-out refi aligns with your financial goals. They can also smoothly guide you through the process from application to closing.
Contact us today to explore your cash-out refinancing options! Our mortgage experts can help you put your home equity to work.
Applying for a mortgage is a significant step towards achieving the dream of homeownership, paving the way to turn aspirations into reality.