Owning a home is one of the largest investments a person can make in their lifetime, and sometimes, it can be difficult to afford the necessary finances that it takes to maintain your home and keep up with repairs and renovations. Fortunately, as you continue to pay the mortgage on your home, your home equity increases. With a cash-out refinance, you can take out a new mortgage loan for an amount that’s larger than your current mortgage, and receive the difference in cash. If you are located in the areas of Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and are looking for ways to afford home improvements, contact Foundation Mortgage today to see if a cash-out refinance is the right option for you.
How Does Cash-Out Refinancing Work?
Equity is the amount of your property’s value that you actually own, and as you continue to pay your mortgage, you gain more equity in your home. With a cash-out refinance, you essentially replace your existing mortgage with a new home loan that is more than you owe for the house, and then you keep the cash difference. Many people use the payout for home improvements, to pay off other debts that are owed, for a down payment on a second house, or for any other financial needs.
Pros and Cons of Cash-Out Refinance
Although there are many benefits of a cash-out refinance, there can also be some drawbacks. Some advantages of a cash-out refinance are: you could potentially refinance for a lower interest rate, you can make repairs and improvements to your home and increase its value, you can consolidate and pay off other existing debt, and you could receive tax deductions. Some disadvantages of a cash-out refinance are that it reduces the equity in your home, it significantly extends the duration of your mortgage payments, you will have to pay closing costs and private mortgage insurance, and since your home is collateral, you risk foreclosure if you fail to make the payments. Our loan specialists at Foundation Mortgage can work with you to determine if a cash-out refinance would be the right refinancing option for your situation.
Qualifications for a Cash-Out Refinance
If you decide that a cash-out refinance is a viable option, there are some typical requirements that lenders consider, including:
- You will need a credit score of at least 620
- You will need a debt-to-income ratio of 50% or less
- You will need to have a significant amount of equity built into your home, and the lender will limit the amount of money you will be able to cash out
- You will need to provide documentation to verify your income and finances
Getting Started With a Cash-Out Refinance
If you are interested in a cash-out refinance in the areas of Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, contact Foundation Mortgage today for a consultation. We can help you analyze your current financial situation and goals and determine if a cash-out refinance would benefit you.