What is a Cash-Out Refinance?
A cash-out refinance is a loan that replaces your existing mortgage with a new, larger one. The difference between the new loan and what you owe on your current mortgage is given to you as cash. This money can be used for various expenses, such as home renovations, educational costs, or even debt consolidation.
Top Picks for Cash-Out Refinances
Here are some of the best options for cash-out refinancing, based on different borrower needs.
1. Best for Digital Refinancing: Rocket Mortgage
- Minimum Credit Score: 580 to 620
- Pros:
- Fast online application with loan options in under 7 minutes.
- High customer satisfaction ratings.
- Cons:
- No physical branches for in-person support.
2. Best for FHA Loan Refinancing: NBKC Bank
- Minimum Credit Score: Not specified
- Pros:
- Offers FHA refinancing and loans for self-employed individuals.
- Great customer service, available by phone or online chat.
- Cons:
- Requires personal information for a rate quote.
- Website doesn’t list mortgage rates upfront.
3. Best for Low APR: PenFed Credit Union
- Minimum Credit Score: Not specified
- Pros:
- Offers competitive APR rates (as low as 6.389%).
- Anyone can join the credit union.
- Cons:
- Membership required to access the loan.
4. Best for VA Loan Refinancing: Navy Federal Credit Union
- Minimum Credit Score: Not specified
- Pros:
- Allows refinancing up to 100% of your home’s value for VA loan holders.
- Easy online loan tracking with HomeSquad.
- Cons:
- Membership required (only available to those with military ties).
5. Best for Loan Term Flexibility: SoFi
- Minimum Credit Score: Preferably 620
- Pros:
- Offers a variety of loan term options (10, 15, 20, or 30 years).
- $500 discount on processing fees for eligible borrowers.
- Cons:
- No VA or FHA loan refinancing options.
6. Best for Fast Closing: Warp Speed Mortgage
- Pros:
- 14-business-day closing guarantee.
- Fully digital application process.
- Cons:
- Closing guarantee doesn’t apply if there are third-party delays.
Steps to Get a Cash-Out Refinance
- Check Lender Requirements: Ensure you meet the lender’s criteria.
- Determine Your Cash Needs: Know how much cash you need before applying.
- Submit Your Application: Provide necessary documentation like income and property details.
- Approval and Funding: Wait for approval and receive the cash payout.
- Repay Your Loan: Start making your monthly payments based on the new loan terms.
Alternatives to Cash-Out Refinancing
While cash-out refinancing is a popular option, there are other ways to access your home equity:
- Home Equity Loan: A second mortgage where you receive a lump sum and repay it over time at a fixed rate.
- Home Equity Line of Credit (HELOC): A revolving line of credit similar to a credit card, with flexible borrowing and repayment options.
Pros and Cons of Cash-Out Refinancing
Pros:
- May help reduce your mortgage interest rate.
- Replaces your old mortgage instead of adding an extra loan.
- Can offer more money than personal loans or credit cards.
Cons:
- Defaulting could result in losing your home.
- The loan term resets, potentially extending your repayment period.
- High closing costs (typically 2%-6% of the loan amount).
Cash-Out Refinance Requirements
While requirements vary by lender, most will require:
- Credit Score: Often at least 580 (higher for conventional loans).
- Debt-to-Income (DTI) Ratio: Usually below 50%.
- Equity: You’ll need enough equity in your home, generally at least 20%.
When to Consider a Cash-Out Refinance
If you need a large sum of money for things like home repairs, paying off debt, or covering education costs, a cash-out refinance may be a good option. It often offers better rates than credit cards or personal loans, making it a more affordable choice in the long run.
Frequently Asked Questions
Can I get a 90% cash-out refinance? Some lenders allow up to 90%, but you’ll need to compare options carefully.
How can I qualify for a refinance? Typical requirements include a credit score of at least 620, a low DTI, and enough equity in your home.
Can I refinance with bad credit? Yes, some lenders may approve refinances with credit scores as low as 580, particularly for FHA or VA loans.
How long does refinancing take? On average, a refinance takes about 30 to 45 days, but this depends on various factors, including third-party services like appraisals.
Should I choose a fixed or adjustable-rate mortgage? Fixed-rate mortgages offer stability with consistent payments, while adjustable-rate mortgages can fluctuate with the market. Both have pros and cons, so consult a professional to determine which suits your financial situation.
