Cash-Out Refinance
In this guide on Non-QM Mortgage Brokers, we will be covering the topic of cash-out refinance on government, conventional, and non-QM loans. Home prices have skyrocketed to record prices. Homeowners who purchased their homes in the past several years had seen the equity in their homes skyrocket to incredibly unbelievable levels.
The mortgage and housing market has drastically slowed due to surging home prices and ridiculously inflated mortgage rates have slowed the loan origination mortgage. However, cash-out refinance mortgage loans have continued to increase nationwide. There are many reasons to do a cash-out refinance. All cash-out refinance mortgage guidelines are different depending on the loan program and individual lender overlays.
How Do Cash-Out Refinance Mortgage Loans Work?
Cash-Out Refinance Mortgage Loans are when you are getting a new refinance mortgage to pay the existing mortgage loan balance in addition to a specific loan amount above the existing loan balance for yourself. By doing so, your new cash-out refinance mortgage payment will be higher than the previous loan balance since your loan balance with being higher.
It is common sense that when you do a cash-out refinance mortgage, you are tapping into the equity in your home. What this means is you will get the cash from your cash-out refinance mortgage. However, you will owe the money drawn against your home. Your monthly housing payment (PITI) will increase and so will your outstanding mortgage loan balance.
You owe more: With a cash-out refinance, your overall debt load will increase. No matter how close you were to paying off your original mortgage, the extra cash you obtained to pay the contractor is now a bigger financial burden. This also reduces your proceeds if you were to sell.
You will be more in debt from the cash-out refinance mortgage. But, as the saying goes cash is KING. Mortgage companies will not question you on what you will do with the proceeds. The proceeds from the cash-out refinance are tax-free and can be used in any manner or form. There are necessities that benefit from cash-out refinance which we will cover in the next paragraph.
Why Do Homeowners Need To Do Cash-Out Refinance Mortgage?
Homeowners can help dozens of reasons to do cash-out refinance mortgage loans. Some borrowers will use it for investments while others will use it to pay outstanding high-interest debts such as credit card debts, outstanding student loans, or auto loans.
Cash-Out Refinance Mortgage Loan Options
Every mortgage loan program has a cap on the loan-to-value when it comes to cash-out refinance mortgage loans. The loan-to-value is derived by taking the mortgage loan balance divided by the current appraised value of the home. The higher the loan to value, the less risk for the lender.
For example, if a homeowner has a home without a mortgage and wants the maximum cash-out refinance mortgage, the lender will base how much they will lend based on the loan to value. In the next several sections, we will cover the maximum loan-to-value cap on government, conventional, jumbo, and non-QM mortgage loans.
HUD Cash-Out Refinance on FHA Loans
HUD, the parent of FHA has a maximum loan-to-value cap of 80% LTV on all FHA loans. FHA loans are the most popular loan programs for owner-occupant primary homes due to their lenient mortgage guidelines.
An FHA cash-out refinance is an FHA loan option that allows you to borrow more than you currently owe and pocket the difference between the two loans in cash. You can use the money in a variety of ways, including: Funding home improvements. Consolidating high-interest-rate debt.
Homeowners with credit scores down to 500 FICO are eligible for FHA loans. The maximum debt-to-income ratio caps on FHA loans is 46.9% front-end and 56.9% back-end debt-to-income ratio. You do not have to pay outstanding collections or charge off accounts to qualify for an FHA loan.
Cash-Out Refinance Guidelines on VA Loans
VA loans are the best owner-occupant mortgage loan program in the nation. The U.S. Department of Veterans Affairs administers VA loans. You can purchase a home with no mortgage insurance premium at competitive rates with 100% financing on VA loans. VA loans do not have a maximum loan limit.
A VA-backed cash-out refinance loan lets you replace your current loan with a new one under different terms. If you want to take cash out of your home equity or refinance a non-VA loan into a VA-backed loan, you can be eligible for a cash-out refinance VA loan up to a 100% loan-to-value. Non-QM Mortgage Brokers has no lender overlays on cash-out refinance VA loans.
On the flipside, homeowners can do a 100% loan-to-value cash-out refinance on VA loans on one to four-unit residential own-occupant homes. Again, as on purchase transactions, there will be no mortgage insurance and no maximum loan limit on cash-out refinance VA mortgage loans.
Fannie Mae and Freddie Mac Cash-Out Refinance Guidelines on Conventional Loans
Fannie Mae and Freddie Mac are the two largest mortgage-backed securities buyers in the nation. Fannie Mae and Freddie Mac only buy mortgage loans that only conform to Fannie and/or Freddie mortgage agency guidelines. Because Fannie Mae and Freddie Mac only buy mortgage loans that conform to its guidelines, conventional loans are often referred to as conforming loans.
Per Fannie Mae and Freddie Mac conforming lending guidelines, a conventional cash-out refinance allows you to borrow up to 80% of your home’s value with a minimum credit score of 620. FHA loans: An FHA cash-out refinance allows you to borrow up to 80% of your home’s value. VA loans allow up to a 100% loan-to-value cash-out refinance on VA loans.
Conforming loans are not backed by any government agencies like FHA, VA, and USDA loans. The maximum loan-to-value conforming guidelines on cash-out refinance conventional loans is 80% LTV.
FHA and VA Cash-Out Refinance Guidelines To Buy Out Chapter 13 Bankruptcy on VA and FHA Loans
There are two different kinds of bankruptcies: Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. Chapter 7 Bankruptcy is discharged after 90 days of the filing date. Chapter 13 Bankruptcy is normally a five-year debt restructuring repayment plan.
Many borrowers are also wanting to pay off their Chapter 13 bankruptcy balance in full and look to obtain an early discharge with a cash out refinance. If you have enough equity, you may be able to use it to pay your mortgage debt and applicable interest.
For five years of the repayment plan, you will be required to check in with your bankruptcy trustee and always need permission from your trustee when it comes to your financial matters. There are other folks who are in a Chapter 13 Bankruptcy repayment plan and want to buy out the Chapter 13 Bankruptcy.
Cash-Out Refinance With Non-QM Loans
Non-QM loans are a great mortgage loan option where they do not qualify for government and conforming mortgage loans. Non-QM loan programs are not just for borrowers with bad credit. Many homebuyers or homeowners needing to do a refinance often opt to go with non-QM mortgage loans. In general, the reason why you would use non-QM loans to proceed with a non-QM cash-out refinance loans is that you may not meet one or more agency mortgage guidelines.
Non-QM Cash-Out Refinance Mortgage Loan Options
One of the most common reasons for using non-QM cash-out mortgage loans is that you are self-employed. Down payment and closing costs on non-QM loans are higher than on traditional mortgages. The down payment requirement or loan-to-value on refinances are generally between 70% to 90% loan-to-value.
A non-qualified mortgage may provide a temporary lending solution until you meet regular mortgage guidelines and can refinance to a traditional loan. Interest rates for non-QM loans are higher than loans for more traditional financing as Non-QM loans have “riskier” features. Rates vary on the program but typically land in the range of 7-9% at the cost of 1-2 points.
There are a wide variety of non-QM mortgage loan options for owner-occupant homes, second homes, investment properties, and commercial loans. Bank statement loans, DSCR mortgages, no-doc loans, and stated-income mortgages are very common and popular month self-employed borrowers. Another reason can be you had late payments in the past 12 months.
No-Doc Non-QM Cash-Out Refinance Mortgage Loans
Another reason you may consider a non-QM mortgage is no employment or traditional income but you have assets such as our asset-depletion mortgage loans, no-docs mortgages, 1099 income-only mortgages, and DSCR mortgage loans.
A no-income-verification mortgage does not require the borrower to provide the lender standard proof of income documents, such as pay stubs, W-2 forms, and tax returns. Instead, you may be able to qualify based on bank statements or other items.
In general, non-QM loans cap the maximum debt-to-income ratio between a 10% to 30% down payment on home purchase non-QM loans and a 70% loan-to-value on a cash-out non-QM refinance transaction.
Cash-Out Refinance During Divorce To Settle Assets With Ex-Spouse
Divorce is such an ugly, stressful, and expensive word all at the same time. However, divorce is a fact of life. Just under half of the marriages end in divorce within ten years. During the time of marriage, most people will no doubt own a home together. So how do you split the asset? People undergoing a divorce may need to sell the home to split the home equity and do a cash-out refinance mortgage loan.
A divorce house buyout is when one spouse decides to buy the other spouse out of a house they jointly owned during the marriage. In other words, the buying spouse pays the other spouse according to the current value of the home or by offering to take over their share of the mortgage. A cash-out refinance can be one way to split assets with your ex. Say you want to keep the house but need to buy out your former spouse. With a cash-out refinance, you could get money from the equity to pay your ex-spouse for their share of the home.
You may have equity in the home but that means you need to access the cash through the equity in order to pay the other spouse for not getting the house for settlement. People getting a divorce can settle with other assets and the one awarded the house will still need to refinance the ex-spouse of the title.
Using Cash-Out Refinance Mortgage Proceeds For Investments
Many homeowners take advantage of the equity in their homes to use for investment purposes. Homeowners may want to invest with the proceeds from their home equity by buying Gold, Silver, real estate, antiques, unique collector cars, paintings, or opening up a business.
Investment purposes: Cash-out refinances offer homeowners access to capital to help build their retirement savings or purchase an investment property. High-interest debt consolidation: Refinance rates tend to be lower compared to other forms of debt like credit cards.
Using Cash-Out Refinance Mortgage Proceed For Home Improvement
Many homeowners realize how home prices have escalated. Many renters and millennials have been priced out of the housing market due to surging home prices. What happens to homeowners who currently own a home but cannot afford to sell and purchase another home to upgrade due to a growing family? That can be a major problem. One potential solution to get more house for the money is to utilize your equity in your current home to renovate. You can do major room additions or even a gut rehab. There are other options you can explore on renovation mortgage loans but you may also want to explore a cash-out refinance loan option as well. To find out more about cash-out mortgage loan options, please contact us at Non-QM Mortgage Brokers at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Non-QM Mortgage Brokers is available 7 days a week, evenings, weekends, and holidays.