Understanding Cash-Out Refinance and How It Works

A house is often one of the largest investments we make, and you really want to take the time and do whatever you can to make sure your home is safe and livable. But it may not always be easy to save up enough money for home repairs and renovations. Fortunately, cash-out refinancing can help you achieve your goals without going into further debt. If you’re interested in learning more about how a cash-out refinance works, then this guide is for you.

What is Cash-Out Refinancing?

Cash-out refinancing is a type of home mortgage refinance that allows you to borrow as much money as you can qualify for. The proceeds from the refinance become available to you immediately, and you can use the cash to take care of whatever home repairs and renovations you need.

Essentially, it’s a type of refinancing where you don’t just change the interest rate on your current mortgage but where you take out additional money. The interest rate on a cash-out loan will be higher than a traditional refinance because you’re taking on more debt. However, it can be a way to fund home improvements, repairs, renovations, or even a college education.

How Much Money Can a Cash-Out Refinance Borrow?

Because there’s a risk involved in taking out a cash-out refinance, most lenders will only let you borrow 80% of your home’s value. Your home’s value will be determined by an appraisal or a home evaluation. You’ll have to pay closing costs as part of the deal, and they’ll likely involve a few thousand dollars—though they may be paid for by the lender.

There are some lenders that can allow you to borrow more against the value of your home, such as 90% or even 95% of your home’s value. But these loans will involve a credit check, and you’ll need to pay higher interest on the loan. The reason for this is because the lender is taking on more risk with a loan that’s larger than 80% of the home value.

Qualifying for a Cash-Out Refinance

Just like with a traditional refinance, you need to qualify for a cash-out refinance. Lenders will do a credit check, and they’ll look at your income, your expenses, and any other debts that you have. These factors will determine how big of a loan you can receive and how much you can afford to pay each month. This gives lenders the information they need to determine whether or not you can afford to make your loan payments each month.

If your credit score is low, you might be denied for a cash-out refinance, or you might have to pay a higher interest rate on the loan. However, if you’re a good candidate for a cash-out refinance, then it could be a good option for you.

Your Experts at MidAmerica Bancorp Are Here For You!

Many homeowners may find themselves in a situation where they need extra money to pay for home repairs, renovations, or a home improvement project. A cash-out refinance can be a way to pay for these expenses. If you’re interested in learning more about cash-out refinances, then contact a local mortgage lender today.

MidAmerica Bancorp, Inc. is here to make your mortgage application process fast and easy.

Whether you’re a first-time homebuyer or you’re aiming for a home loan refinance, our mortgage experts are here to assist you with your application. Contact us today at (708) 237-4050! We are licensed in Illinois, Indiana, Florida, Michigan and Wisconsin.