Cash-out refinancing allows you to tap into some of the equity that you have built up in your home. You are able to borrow more than you owe when you refinance your home loan. That means that you are not only restricting your loan for better payment terms, you are also left with a little extra cash to use.
This cash can be used to improve or upgrade your home or could be used for other personal expenses, such as education or medical needs. A cash-out refinance allows you to access the equity in your home without selling your home.
The amount of cash that you are able to get when you go through a cash-out refinancing loan process depends upon more than just the equity that you have built up in your home. It also depends on the value of your home, the type of loan you originally had, as well as your credit score.
Equity in Your Home
The first thing that your bank will look at is the equity you have built up in your home. How much of your loan have you paid off already? For example, have you paid off twenty percent of your loan or have you paid off seventy percent of your loan?
The greater percentage of your loan that you have paid off, the larger amount of equity that you have built up in your home. You are going to have a better chance of being granted a cash-out refinance loan if you have paid off a greater portion of your loan.
Value of Your Home
Just because you bought your home for a set amount doesn't mean that is what your home is worth today. For example, you may have purchased your home ten years ago for $150,000 years. The value of your home may have increased to $200,000 or decreased to $130,000.
The current value of your home will impact how much you are able to get in cash for your home, combined with how much of your loan you have paid off. If your home has increased in value, you have a greater chance of getting the amount of cash you want when you refinance your home verses if the value of your home has decreased.
Personal Credit Score
Finally, your personal credit score still maters when it comes to getting a cash-out refinance loan. Even though the bank already knows that you are capable of paying on your mortgage, they are still going to take a look at your credit score to see how you manage your money overall.
They are going to want to make sure that you will be responsible for paying back your loan. The higher your credit score, the greater the amount of cash your bank will be willing to lend you. If you have a lower credit score, you are not going to be able to tap into as much equity.
If you want to cash-in on the equity in your home, the bank is going to look at the percentage of your original loan that you have paid off, the current market value of your home, as well as your credit score to determine how much cash they are willing to give you with a cash-out refinance loan.