If you have owned your home for several years, then you have likely built up a significant amount of equity in your property. With a cash out refinance, you can utilize your home value for a variety of purposes. Read on to learn more about what a cash out refinance is, its requirements, and how to best use the funds to help you accomplish your financial goals.
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What is a Cash Out Refinance?
A cash out refinance is a type of refinancing that allows you to receive a new loan amount that has a higher value than your existing mortgage. The difference in these amounts is then given to you in cash that can be used for several purposes from home renovation to debt consolidation.
How Does a Cash Out Refinance Help You Accomplish Your Financial Goals?
By leveraging your home equity when you refinance, you can use the money to pay off student loans and bills to improve your credit score and debt-to-income (DTI) ratio. Doing this will not only eliminate your debt and put you in better financial standing, but it also allows you to use the extra cash to make beneficial investments in your future.
What are the Requirements?
While mortgage companies in Texas recommend you utilize a refinance to help you achieve your financial goals, you must meet certain requirements to be eligible. Before you can apply to refinance, you need to have a history of timely mortgage payments for at least 12 months and have a minimum of 20% equity in your home. For investments properties and secondary homes, the minimum equity requirement is 25%. If you have a conventional mortgage, you must have a credit score of 620 or higher to qualify or a score of 580 or more for FHA-supported loans.
How to Best Utilize the Money
While you can use the funds from your cash out refinance for a variety of purposes, mortgage companies in Texas advise using the money in one of the following ways.
- Debt consolidation. When you put the money from your refinance towards paying off consumer debts, it improves your credit score, debt-to-income (DTI) ratio, and allows you to receive significant tax reductions related to your mortgage interest.
- Home renovation. By utilizing the funds from your cash out refinance for home improvement projects, you increase the value of your home. Consider using this money to add a bathroom, renovate the kitchen, or replace the HVAC system to drastically enhance the value of your property.
- Build Your Bank Account. Save the money from your cash out refinance to go towards your child’s college fund, retirement plans, or to build up your savings account.
Meet and Exceed Your Goals with a Cash Out Refinance
With a cash out refinance, you can utilize your home equity to support your financial goals and set yourself up for long-term success.
To learn additional information about a cash out refinance and schedule a consultation, contact us today.
At BrightPath, we will provide you with the comprehensive analysis and answers you need to shape your financial future.