With the rapid appreciation that homes have had in the last two years, most homeowners have equity. A common way to release part of the equity is to cash-out refinance but some homeowners may not be eligible currently.
This type of loan replaces the current mortgage by paying it off and an additional amount of cash for the owner. Generally, lenders will consider a new mortgage up to a total of 80% of the current value.
Typically, the rate on a cash-out refinance will be slightly higher than a traditional purchase money mortgage. As is in any lending situation, the rate depends on the borrower's credit and income. The best interest rates are available to borrowers with higher credit scores, usually over 740.
Loan-to-value can affect the rate a borrower pays also. A 70% loan-to-value mortgage could be expected to have a lower interest rate than an 80% LTV because there is a larger amount of equity remaining in the property and therefore, less risk for the lender.
There are no restrictions on how the owner can use the money. It can be used for home improvements, consolidating debt, other consumer needs or for investment.
Eligibility Requirements as found in FNMA Selling Guide B2-1.3-03 Cash-Out Refinance Transactions
"Cash-out refinance transactions must meet the following requirements:
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Bob is dedicated to offering the finest real estate service available in the Lake Geneva area. He attempts to make each buyer or seller he works with feel like they are the one and only client he has and strives to make each transaction a pleasurable experience with the least amount of problems, stress, and inconvenience to them.