What are the Qualification Requirements?
Just like when you bought your home, you have to qualify for a cash-out refinance. The requirements are similar. You must prove that you have the credit, income, and employment to qualify for the loan. Each loan program has its own guidelines, but in general, expect the following:
- Credit scores of around 620 or higher – The actual credit score depends on the program. For example, FHA offers lower credit score requirements, but conventional loans require credit scores of at least 680.
- Debt-to-income ratios lower than 50% - Your monthly debt payments (mortgage, car, student loans, and credit cards) divided by your gross monthly income is your debt ratio. Most loan programs require this to be less than 50%.
- Equity in your home – You need room in the home’s equity to tap into it. Most loan programs allow you to borrow up to 80%, so a sizeable amount of equity is important.
Understanding the Terms
A Texas cash-out refinance pays off your original mortgage and replaces it with a new loan. This means starting your term over again, but you have options. Look carefully at the payment you can afford today and moving forward. You don’t have to restart your current term, if you can afford a shorter term, take it.
Cash-out refinance loans are available in many terms, just like a purchase loan including 10, 15, 20, 25, and 30-year terms. Choose the term you can most comfortably afford but that doesn’t add too many years onto your current mortgage payoff plan.
For example, if you had a 30-year term, but paid on the loan for five years, consider a 25-year term. With today’s low rate environment, you may find that the payment is similar even with the higher loan amount.
How do you Get a Texas Cash-Out Refinance?
- Apply for the cash-out refinance like you would a purchase loan, except this time you choose cash-out-refinance as the purpose
- Provide the necessary documentation including your most recent paystubs, 2 years of W-2s, employer information, bank statements, and any Letters of Explanation or other financial documents required given your circumstances.
- Wait for lender approval. You’ll find out how much loan you can borrow, at what terms, and what conditions you must satisfy.
- Order the appraisal. You must prove that your home is worth enough to provide the necessary collateral for the cash-out loan. Depending on the timing, the lender may do a desktop or drive-by appraisal rather than sending someone into your home.
- Order the title work. Your home must be free of any liens except for your current mortgage.
- Close on the Texas cash-out refinance. At the closing, your first mortgage gets paid off and you receive the remaining funds.
How are the Rates for a Texas Cash-Out Refinance?
Texas cash-out refinance rates are lower than ever right now as the mortgage industry tries to stay afloat amid the crisis. It’s a great time to take advantage of low rates and home values before they start falling amid the crisis. The lower your interest rate is the lower your monthly payment will be, making it more affordable to tap into your home’s equity.
Understanding the Closing Costs for a Texas Cash-Out Refinance
Just like when you bought your home, you’ll pay closing costs. The average Texas cash-out refinance program costs between 2% and 5% of the loan amount. On a $100,000 loan, that means between $2,000 and $5,000 in closing costs.
The Benefits of a Texas Cash-Out Refinance
Tapping into your home’s equity provides homeowners with a variety of opportunities and benefits including:
- Pay for necessary or elective home renovations or repairs – Investing the funds back into your home helps your home increase in value while improving your living space without spending money out of your own pocket
- Consolidate debt – In today’s uncertain times, it’s important to prepare yourself financially. Consolidating your consumer debt into your mortgage helps you take advantage of lower interest rates and lower payments.
- Set up an emergency fund – Having an emergency fund today is crucial to protect you against the unknown. Preparing now ensures you’ll have the funds should the worst occur and you lose your job or fall ill.
- Invest your funds – Saving for retirement may seem impossible right now, but if you tap into your home’s equity, you can invest the funds and take the burden off yourself of saving for the future for the time being.
The Texas cash-out refinance offers the chance to get your hands on liquid funds during this trying time. Take advantage of today’s low interest rates and refinance your mortgage. You may even save money on your mortgage or get a better term, giving you even more benefits of tapping into your home’s equity with a cash-out refinance.