Tuesday, April 30, 2013

What is the process of cash-out refinancing?

  1. Your credit rating – Before you can lay your hands upon a cash-out refinance loan, it is necessary that you build a dependable credit portfolio (or borrowing profile). You should display much more maturity and sense of responsibility while taking out a cash-out refinance than otherwise you had at the time of obtaining the original home loans. This is because, to lenders, cash-out refinance loans are riskier than other real estate loans and so, they verify credit histories of the loan applicants like you much more closely.

    In this case, having a strong credit history coupled with a good credit score will keep you in a better position as far as your credit worthiness is concerned. Lenders have a minimum credit score requirement and that changes from lender to lender.
  2. Your home equity – There must be some equity in your home for you to qualify for a cash-out refinance loan. In a cash-out refinancing process, it is essential that you furnish a report of home appraisal to the lender who’ll review it before approving you for the loan. Through the appraiser, lenders get to know of your property’s true market value. According to traditional rule, you can use 80% of your home’s equity to obtain a cash-out refinance loan, but it can be higher depending upon the lender’s risk tolerance.

Finally, cash-out refinance loan will come at a higher price than a rate and term refinance loan. This is because lenders can only foreclose the property in order to recover his loan money but he can’t stop you from walking out of the house after refinancing it.