Refinancing your home may have several advantages, such as eliminating short-term debt, shortening your mortgage term, or even improving your credit score. Before you decide, consider each of your refinancing options and how they can best work for you. Let’s start with cash-out refinancing and common ways you can get the most out of this program.
A cash-out refinance begins with a borrower taking out a new mortgage for a larger amount than the existing mortgage. Once closing costs are taken care of, the borrower then receives the difference in cash. This type of refinance is only available if a borrower has accrued enough equity and their credit allows. For most homeowners, you can borrow up to 80% of your home’s worth, so long as you have at least 20% in equity.
Just like when you were originally applying for your mortgage, lenders will be taking a detailed look at your credit score. Lenders may also look at bank statements, your previous loan terms, the balance needed to pay off the previous loan, your debt-to-income ratio, and your property’s loan-to-value ratio.
While you may use your cash-out refinance however you’d like, considering the best ways to spend the money can prove valuable and potentially put yourself in a better financial position. Experts suggest avoiding using the money for things that have little to no return, such as purchasing a new car or an expensive vacation. Instead, consider home maintenance or renovations, especially if the upgrades you’re considering add value to your home, like a room remodel. Helping to pay for tuition, unexpected medical costs, or tackling other areas of debt are great options as well.
Now that you have more information about cash-out refinancing, it’s time to speak with one of our Loan Originators to discuss your best options. Contact us today to learn which refinancing option will work best for you and your home.
Homestead Funding offers exceptional customer service and a convenient mortgage process. Whatever your financing needs, our goal is to exceed your expectations.