In general, a cash-out refinance is exactly what it sounds like: You replace your existing mortgage on your home with a new one for more than you owe on the house, thus allowing you to receive the difference between the original amount and the new one in cash. People do this for different reasons, such as to pay for home improvements, to help manage some of their existing personal debt and much, much more.
Overall, the cash-out refinance process works a little something like this:
- You replace your current mortgage with a new one valued at higher than your current outstanding loan balance. You then get to withdraw the difference between those two mortgages in cash.
- You can use that money for anything you’d like, such as to consolidate debt, or use it toward that big home remodeling project you’ve been excited about, and more.
- You continue to make payments on the new mortgage every month, the exact same way you did with your old one.
Sounds simple, right? The good news is that, in a lot of ways, it is.
The Benefits of Taking Cash Out of Your Home: An Overview
There are a number of other significant benefits of doing a cash-out refinance. If you’re using that money to make improvements to your home that will add to its value, for example, you also get to deduct the mortgage interest rate from your taxes. This can be a great way to make that big renovation project seem a lot more realistic — and easier to pay for. Depending on the types of modifications you’re making, it’s very likely that you’ll come out ahead in the long run as far as equity is concerned — thus making cash-out refinances a decision that essentially pay for themselves for many people.
Going directly into your home’s equity could likely be cheaper than other forms of financing, too, such as getting a home equity loan or using credit cards.
I Want to Do a Cash-Out Refinance. What’s Next?
Once you determine that a cash-out refinance is what you want, there are a number of important steps you’ll need to complete next. These include:
- Work with a lender like Southwest Funding who will make sure that you meet the requirements for going through the cash-out refinance process in the first place. At Southwest Funding, we regularly work with people on cash-out refinances and other lending options (like conventional and FHA loans) that can help them accomplish their goals over the long term.
- With the help of your lender, you’ll most likely need to get an appraisal, as most cash-out refinancing situations are contingent upon this being done by a third party.
- You’ll also have to go through the underwriting process again, and you’ll pay closing costs when you refinance the same way you did when you first bought your home.
- At that point, all you have to do is sit back, relax and wait for the money to hit your bank account. Generally speaking, you should have that cash in hand in as little as three to five days, which means that you can get started on your home renovation project or any other goal you had in mind sooner rather than later!
The Expert Insight You Need When You Need It the Most
Of course, the most important thing to understand about all of this is there is truly no “one size fits all” answer to this question. For some people, getting cash out of their home makes all the sense in the world, and for others, it’s not necessarily the best idea at the current time.
But don’t worry — your partners at Southwest Funding are here to help. We’ve been around for 25+ years, and in addition to conventional loans, we have extensive experience in terms of VA, FHA, USDA, Jumbo and a myriad of other specialty loan products. We’re more than happy to discuss the specifics of your own situation further, making sure you have all the most actionable and accurate information to work from at all times.
So if you’re interested in finding out more about the process of getting cash out of your home and whether it’s worth it, or if you just have any other pressing questions you’d like to get answers to, please don’t delay — contact us today.
Southwest Funding, LP | Southwest Funding, Limited Partnership (NMLS #32139) is an equal housing lender. This is not a commitment to lend or extend credit. Programs, rates, terms and conditions are subject to change without notice. Terms and conditions apply. All rights reserved. Contact us for details. Consult your accountant about tax deductions.