Homeowners in Texas continue to see an increase in home value and are now finding themselves with more equity in their homes. Many Texas homeowners are eligible to utilize a cash-out refinance to convert some of their equity into cash, but what exactly is s cash-out refinance?
What is a Cash-Out Refinance?
A cash-out refinance loan refers to the refinancing of an existing mortgage into a larger mortgage that not only changes the interest rate and the terms of the loan but also advances cash to the borrower from the difference in mortgage funds and the extra funds. A Texas cash-out refinance can also be referred to as a Section 50(a)(6) loan. Borrowers can use the cash-out funds for many things, like home improvements to paying off high-interest consumer debt.
There can be loan-to-value restrictions and tighter credit standards for cash-out loans in Texas. Mortgage interest rates are usually higher in a cash-out loan compared to other loan programs (such as a purchase loan). Texas borrowers should ensure that they have enough equity to match the cash-out guidelines.
How Do Cash-Out Refinances Work In Texas?
Cash-out refinances give Texas homeowners additional cash from the equity in their home. For example, a homeowner who has a loan for $100,000 on a property that is worth $400,000. The homeowner can use a cash-out refinance on the property for the existing loan plus some extra that they wanted in cash.
If the homeowner wanted $50,000 in cash, they could refinance for a $150,000 loan (the amount owed plus the amount they want to receive in cash).
What Credit Score Is Needed For A Cash-Out Refinance In Texas?
In general, most Texas homeowners need a credit score of at least 620 to qualify for a cash-out refinance. However, there are no state guidelines that mandate a minimum credit score requirement for cash-out refinances. Mortgage lenders can decide what credit score homeowners need to qualify for a refinance and meet their underwriting guidelines. This doesn’t mean that are no rules, and homeowners can get a refinance with any credit score. Lenders are held to Fannie Mae and Freddie Mac’s regulations and must ensure that the loans they underwrite for homeowners meet their regulations for conventional loans.
Why Do People Do Cash-Out Refinances?
Homeowners in Texas can use cash-out refinances for many different reasons. Some popular reasons for doing a cash-out refinance are:
- Lower interest rates on a new loan and reduced monthly payments
- Shorter loan term
- Change the type of loan from adjustable to a fixed-rate mortgage
- To use a portion of their home’s equity for home improvements, tuition, debt consolidations, etc.
Advantages of Cash-Out Refinances In Texas
There are many advantages for homeowners who choose to pursue a cash-out refinance in Texas. Homeowners can use the funds from their refinance for just about anything! If you have additional debt from credit cards or student loans, you can use your home’s equity to help pay down those bills. If you plan to upgrade or customize your home, you can use your cash-out refinance funds to make home improvements.
The best way to find out if a cash-out refinance is the right move for you is to talk to a mortgage lender. You can contact JVM Lending to talk through your options at (855) 855-4491 or email us at [email protected].