For homeowners with student debt, refinancing your home can help consolidate your debts, pay off high-interest student loans, and allow you to use your home’s equity. This remains the lowest cost funds available in today’s market, thanks to home value appreciation and low interest rates.
Many millennial homeowners are now taking advantage of their home’s equity to pay off their student loans. This type of loan is a “student loan cash-out refinance,” and it can eliminate a debt from your life.
What is a student loan cash-out refinance?
A student loan cash-out refinance is a mortgage that lets you use your existing home equity to pay off your existing student loans. To qualify for this option, the “cash-out” funds you receive must:
- Have at least one student loan repaid in full (partial payments don’t qualify).
- Pay off a loan in your name — you can’t put the money toward someone else’s loan (like a child, for example).
- Send the funds directly to your student loan servicer at closing.
For example: if your home is valued at $400,000, your mortgage is $300,000 and you have $40,000 in student loan debt. You could take out a student loan cash-out refinance loan totaling $340,000, and your lender would provide the extra $40,000 directly to the student loan servicer.
Requirements:
- DU (Desktop Underwriter) – To be eligible, the loan must be underwritten in DU. This is something that your mortgage lender will handle as part of the loan process, but note, that there may be specific requirements and documentation that you need to provide to ensure that your refinance qualifies.
- Ratios – The standard cash-out refinance LTV (loan-to-value), CLTV (combined loan-to-value), and HCLTV ratios apply. You can ask your mortgage lender what these limits exactly are and what your specific numbers are.
- Pay Off One Loan In Full – We’re repeating this point as it’s important to note that the entire student loan balance must be paid off. Check with your student loan servicer so you are certain what your loan payoff amount is so that you don’t jeopardize your transaction and eligibility.
Questions?
If you have any questions about refinances, mortgage rates, or how to pay off your student loans with your home’s equity, please reach out to our team! We are available 7 days a week and guarantee 60-minute response times.
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
