The cash out refinance option is far more popular than most people realize. According to the Truth about Mortgages, many people wind up with cash out refinance options without realizing it because the option may be given another name. This particular refinancing option can offer a lot of freedom. However, you need to keep a number of things in mind before you take it up.
Seasoning Required
Traditionally, lending institutions do not want to offer cash out options for houses that have not been seasoned. According to “Everything You Need to Know about Refinancing,” a property is considered seasoned if it has been financed for at least 12 months. This means that no refinancing or cash out options can be used during those 12 months. In some cases, lenders may be willing to make exceptions for most of the house’s value so long as the homeowners have a minimum of 25 percent home equity.
Credit Scores Do Make a Big Difference
When considering your option, make sure that you check out your free credit score. You need to make sure that you understand your current credit history to have a better idea of what deal you can get. The interest rates, as well as the repayment plans, will depend significantly on your credit score. If you have a bad one, then you will need to take extra steps to offer assurances and convince the bank or lending institution that you are worth the investment.
Getting Money Back
Often times, borrowers assume that a cash out refinance option requires that they get money out. That’s not the case. In some cases, you may find yourself getting a cash out refinancing option simply by having the bank apply the money toward various loans and liens. Regardless of what it is called, if the refinancing option involves your taking out more money than the mortgage or loan requires, then you are likely involved in a cash out refinancing option, and the underwriting will reflect your state’s laws for that process.
Serial Refinancing Can Set You Back
It can be tempting to use serial refinancing to keep yourself in the black. However, it can also set you back significantly in paying off your mortgage. It may also result in your being in a negative equity position. Refinancing, even cash out refinancing, should not be treated as a way to get additional money. You should only use it when you must or when you are fairly certain that it will benefit you in the long term. The additional cash should be used to help alleviate debts or improve the property value rather than be used for short-term thrills. Also remember that every time you refinance, you must pay additional closing costs. These can involve options that include set prices that start at a few hundred dollars and go up to a couple of thousand dollars, or options that include a set percentage of the final loan amount.