Could a Refinance Mortgage Benefit YOU? Here’s How They Work

Cash out refinance options allow you to refinance your home mortgage in order to receive cash when you need it. You may need to explore refinance mortgage options for a variety of reasons, such as needing funds for home repairs or to cover medical expenses. 

Often, those reasons pop up by surprise with little or no warning. Whatever your reasons are, an online search for “cash out refi” yields many options, but those options may be confusing to many. 

Before searching for things like “refinance my house with cash out” online, it’s important to understand what the cash out refinance process is like. For instance, you must have enough available home equity to make it a viable option. You also need to consider home refinance rates offered by various sources. 

Follow these five steps below to make sure you take full advantage of mortgage refinance rates and options without skipping any vital parts of the process.

Know Basic Cash Out Refinancing Requirements
Know Basic Cash Out Refinancing Requirements

Before looking for mortgage refinance quotes, it’s good to know basic cash out refinancing requirements. You must meet those requirements before your lender can allow you to refinance. Lender requirements vary, but most consider similar factors.

Primary factors include the following:

  • Equity – You must have some home equity to take out a refinancing loan against.
  • Debt-to-Income – Your debt-to-income ratio (DTI) must indicate you can afford to pay current mortgage refinance rates. A typical accepted DTI is 50% or less. However, each lender has different accepted standards.
  • Credit Score – You must demonstrate responsibility by passing a credit score check. Your lender’s requirements may vary, but 600 is usually considered the lowest score for good credit.
Establish Financial Goals Ahead of Time
Establish Financial Goals Ahead of Time

Calculating cash out refinance goals for yourself is an essential step in the process. You need to know exactly how to use the funds you receive. It is also important to understand cash out refinance rates so you can avoid unexpected drawbacks.

Important aspects to think about before you speak to a lender include:

  • Current home equity
  • How much you want to borrow from your home’s equity
  • Why you need the money
  • Whether you are in a position to comfortably repay the loan

Even the most attractive home loan refinance offers cannot help you if you are in a poor financial position. You might meet minimum qualification requirements, but you might also set yourself up to fail. If you cannot afford the ongoing mortgage payments, you could risk losing your home and destroying your credit rating.

Knowing exactly how much money you need is advisable because there may be a safer way to obtain the funds, especially if the amount you need to borrow is comparatively small.

Select a Cash Out Refinance Type
Select a Cash Out Refinance Type

If you are sure a cash out refinance is right for you, you may be ready to take the next step. Start looking for a home refinance with a cash out option that you can afford. You can check online home refinance options to begin. Also, contact various organizations and lenders offering such refinancing.

One option is to speak to the Federal Housing Administration (FHA). There are many FHA cash out refinance lenders across the country who are available to assist you. FHA cash out refinance options may be beneficial because they are insured federally. Additionally, speak to the Department of Veteran Affairs (VA), which offers similar refinancing options. However, a VA cash out refinance is only available if you have served in the military.

Many other types of cash out refinancing for homeowners are available. However, they all have specific qualifying criteria you must meet. You might have difficulty deciding because there are so many choices. Speaking to a mortgage company can help you narrow down your options.

Find a Mortgage Company
Find a Mortgage Company

Finding a good mortgage company to refinance with cash out is not always easy. It takes time because there are so many companies from which to pick. Some provide general mortgage service, while others specialize specifically in cash out refinancing.

Additionally, some companies may undergo more scrutiny and certification than others. Government mortgage lenders are among the most closely monitored. In particular, VA and FHA lenders must adhere to strict cash out refinancing regulations.

To find the right mortgage company for a cash out refinance, assess the specific details of each refinancing loan offered by the various lenders. Wide variations in rates between government-backed and non-government-backed lenders are common. Rate variations also occur based on geographic locations and other factors.

Consider exploring online home refinance options to widen your search. You may find lower rates online than you find locally. Consider all factors that impact interest rates when conducting your search for the perfect lender, such as:

  • Geographic location
  • Total equity
  • Loan amount desired
  • Credit score
  • Other requirements set forth by individual lenders


Begin the Application Process
Begin the Application Process

After selecting a refinance mortgage lender, you can begin the application process. Your mortgage refinance pre approval depends on your ability to pass certain assessments. Those assessments are performed based on information and documentation you provide to the lender. The outcome of background and credit checks the lender performs also impacts your eligibility.

Every lender has a different application process. However, you can expect certain common questions you must answer on your application, such as questions about your income. 

The lender may also ask you to produce documents, like one or more of the following:

  • Homeowners insurance proof
  • Bank statements
  • Investment account information
  • Retirement account information
  • Tax documentation
  • Pay stubs

Your ability to get a refinance mortgage also depends upon your specific personal situation. Many factors can alter the home refinance rates you must pay or impact your general eligibility for a refinance mortgage.

For instance, a poor credit rating may not disqualify you from a cash out refinancing mortgage, but it may require you to explain or document the reason for the problem with your credit. Similarly, the need to pay alimony or support a child may not make you ineligible. However, you must prove you have the financial stability to handle those situations and refinance loan payments.