Five Steps to Cash-Out Refinance
Cash-out refinancing can allow you to access the cash through the equity of your home. Before you initiate a cash-out refinance read through these steps.
Step 1: Assess your need.
How much cash do you need and what do you need it for? This step may sound obvious, but it is helpful to be very concrete and specific. Your home is likely your largest investment and it is important to protect it. A good rule of thumb is to use equity for anything that is an investment in the future of you or your family. Smart uses of your home’s equity include home improvement, debt consolidation, or tuition. In the case of home improvement, do your homework – will the value of the improvement equal or exceed its cost?
Step 2: Assess your equity.
Equity is the difference between the market value of your home and how much you owe on your mortgage. It represents the amount you have available to take out as cash when you refinance.(Although it is wise to use only a portion of your total equity.) Be aware that some lenders will not let you take out 100% of your available equity, and you may need some cash to pay off closing costs.
Step 3: Do the math.
Since cash-out refinancing may involve taking out a larger loan amount, your mortgage payment may go up. By how much depends on many factors: the term and the interest rate of the new loan, for instance. The interest rate, in turn, is determined by factors like the loan type (fixed- or adjustable-rate) and your credit score. It’s a good idea to check your credit score before you initiate a cash-out refinance. Then use our cash-out refinance calculator to run the numbers.
Step 4: Choose a lender and apply.
By now you’ve done your homework – you know how much equity you have, how much cash you need and what monthly payment you can afford. You are ready to apply. Fill out our two-minute GetSmart form and get matched to up to five lenders.
Step 5: Close your loan and use your cash.
Expect it to take three to four weeks to close your loan. During this time, the lender will schedule an appraisal if necessary, and you’ll need to send your lender any documentation they request (like W-2s and asset verification, for instance). Your lender will also work with you to schedule a closing date. This is where you will sign the paperwork and, unlike when you purchased your home, the lender will hand you a check. Don’t let it burn a hole in your pocket; deposit and put it to work for you, according to your plan.
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