Cash Out Refinance

The main ingredient of the cash-out refinance is its option to provide the borrower with additional cash from an increased loan amount. This privilege comes at a price. Conforming lenders set lower limits on cash-out loans, as compared to non-cash-out refinances.

Note that if the property has no current mortgage liens on it, then any refinance would obviously be a cash-out refinance.

For conforming programs, the maximum total Loan-to-Value (LTV) ratio for cash-out refinances are usually as follows:

  • Single-family, owner-occupied residential property: 80%
  • Two-unit to four-unit, owner-occupied residential property: 75%
  • All non-owner-occupied residential properties: 65%

Rate & term (No cash out) refinances, by comparison, regularly allow up to 90% of the property's value. Some programs actually allow LTVs of 100% and 125%.

Strictly speaking, the cash-out refinance—and its lower loan limits—applies to the following four situations:

  1. Cash back to the borrowers. The borrower can receive surplus cash from applicable equity in the property. However, most conforming lenders limit the cash-out amount (after all other costs and pay-offs) to only $50,000. Non-conforming lenders also often set cash-out limits; but these limits are usually higher than those for conforming.
  2. Debt consolidation. Conforming lenders classify any refinance that consolidates non-mortgage debts, such as credit cards and other personal loans, as cash-out refinances. Those consolidation funds are essentially cash-out of the property's established equity.
  3. Replace a first or second mortgage that is less than one year old. If you are refinancing a first or second mortgage loan that is less than one year old—regardless of whether the borrower is receiving cash back—conforming lenders classify the refinance as a cash-out.

Was this article helpful?

0 0
The Real Estate Profits

The Real Estate Profits

If You Are Someone Who Doesn't Want To Take A Share Of The Real Estate Pie, This Is Not For You. Do You Feel The Real Estate Market Is Where Your Heart Lies? Always Wanted To Be A Part Of It. But Were Super Confused And Didn't Know Where To Even Start? Looking For Someone To Hold Your Hand And Guide You? Fret Not.

Get My Free Ebook

Post a comment