Ransom Kelly at Assurance Financial has helped local Birmingham, Alabama homeowners understand and meet their needs through cash-out refinance mortgages. Many people turn to this type of financing to help pay for repairs, pay off debt, or pay for college or school tuition. This type of loan helps you borrow funds from the equity that you have built in your home. Read more for the details and call us with any questions.
How Does a Cash-Out Refinance Work?
Once you have completed a cash-out refinance, you may walk away with a larger mortgage and new financing structure than the one you previously had. This can be very advantageous if your home has gained value. For example, if you have paid off $100,000 on a home that is worth $300,000, you can refinance to cover the home and have some cash to pull out and pay for other costs.
Reasons People May Use a Cash-Out Refinance
As mentioned, many people use a cash-out refinance to pay for needed home repairs or other debts owed in their life. One of the benefits of using the funds for home repairs is that you can check to see if you qualify for tax deductions for the costs. You also may have high interest debt on a credit card, and will be able to use funds from a lower interest loan to eliminate this.
Reasons People May Want to Avoid a Cash-Out Refinance
There are many benefits to using a cash-out refinance loan, but as with any financial decision, you must weigh the risks. Clearly, you are taking the equity that you worked hard to build in your home and turning it into debt. There will also be closing costs associated with the new loan. In addition, the new loan may increase your monthly payments. You should calculate these costs against the benefits of paying for repairs or eliminating higher interest debt. Do the math to make sure it does not cost you more in the end to refinance.
Qualifying for a Cash-Out Refinance
You need to be sure you can qualify for a cash-out refinance and review the impacts the new debt will have on your credit score. Here are some of the factors lenders review when looking at applications:
- They will review the loan-to-value, which cannot exceed 80% of the value in your home. This rate may be less if you are looking at refinancing a second property.
- They will review your credit score. Many indicate you will need a score of at least 620 or more to qualify.
- They will ask for your income and financial documentation as well, so be sure to gather everything.
Ransom Kelly at Assurance Financial can help answer your questions about using a cash-out refinance loan in Birmingham, Alabama. Contact our offices today!