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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. If you’ve been paying down your mortgage for some time or your home’s value has gone up significantly, you could take advantage of that equity with a . This process refinances your current mortgage to a bigger loan with additional funds from your equity. How a cash-out refinance works
A is a financial tool that allows you to withdraw some of your home’s equity as cash you can use for any purpose. When you do a cash-out refinance, you replace your existing mortgage with another loan for a larger amount, which includes the remaining balance of your mortgage and the amount you cashed out. Ideally, the new loan has a lower interest rate. Here’s a simple scenario: Let’s say you have about $260,000 left on your mortgage and your home is worth $410,000. That means you have $150,000 in equity. For most cash-out refinances, mortgage lenders require you to maintain 20 percent equity in your home — in this case, $82,000. So, if you did a cash-out refinance, you could tap up to $68,000 of your equity. Add to that the $260,000 balance from your old mortgage, and you’d be borrowing $328,000 with your new loan. You might also decide to finance the for the new mortgage. If you , you’ll have a bigger balance to repay, along with more in interest charges. Keep in mind: You don’t have to cash out all of your tappable equity, and you shouldn’t do this type of refinance unless you have a specific goal for the funds, such as a or education to advance your career. Be realistic with yourself if you plan to use the funds to pay down debt. If the circumstances or habits that first got you into debt are still in place, you might end up digging yourself deeper — now with your home on the line. Cash-out refinance requirements 2022
Cash-out refinance credit score: Many mortgage lenders look for a credit score of at least 620, although depending on the loan program, you might get away with a score as low as 580. Cash-out refinance : The DTI ratio compares your debt payments against your monthly gross income. For a cash-out refinance, lenders like to see a ratio no higher than 43 percent on the new loan, but some do go up to 50 percent. Others stick to a lower DTI ratio closer to 40 percent. Cash-out refinance : For most cash-out refinances, you’ll need to retain at least 20 percent equity in your home. If you’re eligible for a , however, you can take out the full 100 percent of your equity — no cushion needed. In addition, your lender will likely order an . The appraisal determines your home’s value, which is necessary to know before you can cash out. Like any other mortgage, your lender will also want evidence of employment and income to ensure you can repay the new mortgage. Here’s more on . Learn more about cash-out refinancing
SHARE: This article was generated using automation technology and thoroughly edited and fact-checked by an editor on our editorial staff. Bankrate senior editor for mortgages Bill McGuire has been writing and editing for more than four decades at major newspapers, magazines and websites.