Cash-Out Refinance Mortgage
Cash-Out - Getting Cash Back At Closing
- I recently read an ad stating: "Get $25K back after closing". What exactly does this mean?
Getting cash back (cash-out) at closing is exactly what it sounds like
- receiving cash at the close of the sale or mortgage refinance of your home. To understand
why a person might get cash back (cash-out) at closing, you need to understand the concept
of home equity.
Home Owner Equity is a measure of how much of your home you own outright,
free and clear of any financial debt, or encumbrances, such as a home mortgage. If you paid
for your home in cash, you have full equity in your home, equal to the fair
market value of your home at that time. Most people don’t pay for their homes
in cash, but instead take out a home loan. If you have taken out a home mortgage,
the equity you have in your home is equal to the amount of the down payment
you have made plus the amount of the mortgage loan you have paid off (minus interest)
plus the amount of any appreciation in the fair market value of the home.
For example, assume Bob Buyer bought a house for $300,000. He put down a $30,000
down payment and took out a mortgage loan for $270,000. Ten years later, Bob had
paid down the home mortgage by $15,000 and the value of the house had appreciated
to $320,000. At the start, Bob had $30,000 of equity, equal to the amount of
his down payment. Ten years later, Bob had $65,000 of equity: $30,000 from the
down payment; $20,000 from appreciation; and $15,000 from paying on his mortgage.
It used to be that in order to take advantage of the equity in your home, you
had to sell it. These days many property owners are able to take advantage of
the equity that they have built up in their property without actually have to
sell the property. They usually do this by getting cash back (cash-out) at the closing
of a home mortgagerefinance on a home that has greatly appreciated. The
cash can come in the form of hard cash or an home equity line of credit. Either way,
when you get cash back (cash-out) at closing, it is usually structured as a loan secured
by the increased equity in your home. Typically, the loan takes second position
behind the original home mortgage (called a purchase money mortgage), so that in
the event of foreclosure the purchase money mortgage is still paid off first.
Just like the initial home loan, the second mortgage decreases the equity in
your home until you pay it off.
Related Mortgage Products
Whether you are looking to receive cash out from the increased value of your home to use for
debt consolidation, or for any other purpose, cash-out refinance mortgage options could be the solution.
FreeLoanComparison.com lender’s cash-out refinance mortgage offers flexibility and variety so you can meet a diverse range of needs: obtaining cash for home improvements, reducing the current mortgage interest rate and monthly mortgage payment, paying off a purchase money junior lien used for any purpose, or paying off a leasehold interest. Plus, all related closing costs, financing costs and prepaid items can be rolled into the new home loan amount, further maximizing your cash flow potential.
In addition, our lender partners special purpose cash-out refinance mortgage allows you in special circumstances to use the proceeds of the home refinance transaction to buy out the equity of a co-owner.
Product Features
Cash-Out Refinance -- Property Type
Cash-Out Refinance -- Eligible Mortgage Products
- 15-, 20-, 30-, and 40-year fixed-rate mortgages
- 5- and 7-year balloon/reset mortgages
- Most ARMs
- For cash-out refinance mortgages with an LTV ratio greater than 70%, the mortgage must be:
- A automated underwritten acceptable mortgage
- An A-minus Mortgage
- A manually underwritten mortgage with a minimum Indicator Score of 720
- No seasoning requirement for eligible mortgages and inherited properties.
Maximum LTV Ratios for Cash-Out Refinance
- Maximum LTV ratios must comply with standard underwriting guidelines.
Benefits of a Cashout Refinance
Cash-out refinance mortgages:
- Receive cash out to consolidate debt or for any other purpose.
- Pay off junior liens, including HELOC’s. Pay off a purchase money junior lien or a leasehold interest, pay for home improvements or buy out the equity of an ex-spouse, joint heir or joint devisee.
- Eliminate upfront costs by rolling all closing costs, financing costs and prepaid items into the new loan amount.
For more helpful mortgage tips on a cash-out refinance, mortgage refinancing, home loans, reverse mortgages or a home equity line of credit, contact FreeLoanComparison.com today!
Last update: November 14, 2008
