Are you dreaming of making upgrades to your home this summer? With a cash-out refinance, now you can! A cash-out refinance is when you are given a new larger mortgage that pays off the existing one leaving you with funds to put towards home improvements. If committing to a cash-out refinance is not what you want to do, consider a regular mortgage refinance. This can lower your monthly payments and can make space in your budget to gradually make improvements to your home. 

Continue reading below for the most common qualifications needed for a cash-out refinance.

  1. Retain 15% to 20% equity of your home. Lenders often require 80% to 85% equity left on your mortgage to qualify for a cash-out refinance.
  2. Keep a back-end debt-to-income ratio lower than 43%. Adding your new mortgage payment and your existing monthly debt payments should be no more than 43% of your gross monthly income.
  3. Maintain a credit score above 620. Try to have a credit card balance of no more than 30% of your credit limit. 6% or less is ideal. Make sure any other monthly debt payments you have are paid on time.

Meeting these three primary qualifications will help ensure that the process goes as quickly and smoothly as possible when you're ready to get a cash-out refinance.

Now let's look at an example of how you can use this cash-out refinance to make improvements to your home. Say you want to remodel your home's kitchen; this will cost roughly $25,000. The remaining balance on your mortgage is currently $200,000, and the value of your home is currently $350,000. Applying for a cash-out refinance of 225,000 will give you the $25,000 for the remodel and the remaining $200,000 to pay off the existing mortgage. Keep in mind that borrowing more than $25,000 is a good idea to cover the closing cost of the new loan and possible extra costs from the kitchen remodel. When the new loan closes, the $200,000 will be sent to your current lender to pay off your mortgage and the rest of the loan amount will be given to you for the kitchen remodel. Now, not only will you be able to make that upgrade you’ve been saving for, but you have also increased the value of your home long term. 

When considering a cash-out refinance, put the ALLIANCE Home Loan Center at the top of your list. Our qualified staff can walk you through this process and have you upgrading your home this summer in no time. Click here to view our Home Loans page, call us at (806)-776-0991, or feel free to stop by our Home Loan branch located at 8401 Quaker Ave.