house-blue-sky I blogged last week about the importance of liquidity, and as a result we received several inquiries in regard to cash out mortgages (even though that was not the intent of the blog).

    One of the inquiries was from a real estate agent who wants to make sure she is liquid enough to snap up bargain properties (like she did in 2010) and to weather a loss of income should a downturn come.

    My discussion with her prompted this blog.

    Why Borrowers Might Consider Taking Cash Out Of Their Properties

    As a reminder, here are a few of the reasons why borrowers might want to consider taking cash out of their properties:

    1. To weather economic downturns, especially for those in sales;
    2. To cover unexpected expenses like medical or legal bills; and
    3. To buy assets at bargain prices when they bottom out.

    Why You Should Take Cash Out Sooner Rather Than Later

    Here are a few reasons why taking cash out sooner rather than later is prudent:

    1. Rates will almost certainly climb. If borrowers wait, their rates will likely be much higher next year, as the Fed plans to continue to push up rates.
    2. Values often drop during downturns, sharply reducing the amount of equity borrowers can tap into.
    3. Incomes often drop during downturns. When incomes drop, it is often much harder or impossible to qualify for a desired mortgage.

    Fannie Mae allows cash out loans up to 80% of the value of a primary residence, and up  to 75% of the value of a single-family investment property.

    Borrowers with real estate might want to get cash now before the gettin’ gets worse.

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