Get a Cash-Out Refinance Loan in 5 Easy Steps!

A cash-out refinance may be able to help you access a lump sum of cash when you’re in a financial bind. The process involves replacing your current mortgage with a new one that is for an amount greater than what you owe. To take advantage of a cash-out refinance, you must have a certain amount of equity, which is the difference between the current value of the home and the amount you still owe on the mortgage. 

If you qualify, you could receive a large sum of money that can be used for a variety of purposes. The best home refinance with cash-out options can be used to renovate the home, make upgrades or pay off debts.

You can get a cash-out refi in just 5 easy steps.

Understand the Requirements
Understand the Requirements

To secure a cash-out refinance, you must meet all the requirements determined by the mortgage lender. Lenders set minimum qualifications to ensure that homeowners can financially afford to refinance their mortgages.

Although cash-out refinance rates, loan terms and limits may differ by lender, most adhere to similar criteria. If you are interested in a cash-out refi, you must generally meet requirements regarding the following factors:

  • Credit score – You must have good credit in order to secure a cash-out refinance with a mortgage lender. Most lenders look for scores of at least 600, which signifies a responsible borrower who makes consistent on-time payments.
  • Debt-to-income (DTI) ratio – This is a representation of the amount of debt you have compared to the amount of income you receive. Typically, lenders require a DTI of no more than 50%. You can calculate your DTI by adding all your sources of monthly debts and dividing that number by your total monthly income.
  • Equity – You must have equity in your home. Some lenders may have a specific minimum you must meet, while others may determine on a case-by-case basis. For example, to get an FHA cash-out refinance (just one type of refinance option), you must usually have equity of at least 20%.
Determine Your Financial Goals
Determine Your Financial Goals

The purpose of a cash-out refinance is to receive quick cash by relying on the equity in your home. However, before you apply for one, it is important to analyze your needs and determine your financial goals.

Before securing a cash-out refi, ask yourself the following questions to get a better understanding of your financial goals:

  • How much money do I need?
  • What will I use the money for?
  • Do I have equity in my home?
  • How much equity do I have?

If you are not in the financial position for a cash-out refinance, you could see a negative impact on your finances. For example, you could risk foreclosure if you do not make your payments. You will also end up paying more in interest charges over the life of your loan.

Calculating cash-out refinance risks is an important step in the process. There may be other ways to obtain the money you need. For example, if you want to refinance to make upgrades or improvements to your home, consider getting estimates from home contractors first to determine your expected financial commitment.

Choose a Type of Cash-Out Refinance
Choose a Type of Cash-Out Refinance

A quick internet search for “refinance my house with cash out” may result in several different options. For example, an FHA cash-out refinance is available and backed by the government. However, there are other options for which you may qualify.

A VA cash-out refinance is offered by the Department of Veterans Affairs (VA). These types of loans are only available to those who are eligible for VA benefits. Veterans and military members must meet the military service requirements in order to refinance with the VA.

If you are not sure which type of cash-out refinance you can pursue, a mortgage lender can help you decide. You must typically submit certain documents and information so the lender can analyze your eligibility.

Find the Best Mortgage Company to Refinance with Cash-Out Options
Find the Best Mortgage Company to Refinance with Cash-Out Options

Finding the best mortgage company to refinance with cash-out options is one of the most important steps in the entire process. There are hundreds of mortgage lenders throughout the country that can help you refinance. Some may specialize in certain types of cash-out refinance options while others may be able to help you with any mortgage needs.

For example, FHA cash-out refinance lenders must be approved by the Federal Housing Association (FHA). Only approved lenders may offer mortgages secured by the federal government. Likewise, a VA cash-out refinance is only available from approved lenders.

While you search for a cash-out refi lender, it is important to keep a few things in mind. Cash-out refinance rates may vary between lenders, which is why it is always recommended to compare rates before choosing a mortgage lender. Interest is charged to the borrower in exchange for the lender providing up-front funds, just like a traditional mortgage or other type of loan.

Although interest rates vary, they currently range between 2% and 4%. Your rate is determined based on your credit score, your location, the amount of the loan, the amount of equity and the mortgage lender.

Do not limit your search for a cash-out refinance lender only to your immediate area. There are plenty of mortgage lenders that operate nationwide. You may find the best rate and loan options from a lender on the opposite coastline!

Submit Your Application and Documents
Submit Your Application and Documents

Once you find a cash-out refinance mortgage lender, you are ready to apply for the loan. The application process as well as required documentation may differ slightly between lenders. In general, however, you may need to provide the following information and documents:

  • Pay stubs
  • W-2 and tax return documents
  • Proof of homeowners insurance
  • Financial information, such as bank accounts, retirement accounts and investment accounts

Depending on your personal and financial situation, your lender may ask for additional documents. For example, you may need to submit information about child support or alimony payments. Likewise, if you have negative marks on your credit history, you may need to provide information that clarifies the situation.