Use Your Home Equity to Access Cash
Cash-Out Refinance
A cash-out refinance allows you to tap into the equity you’ve built in your home, giving you access to funds for home renovations, education expenses, debt consolidation, or other financial goals.
Benefits
- Unlock cash by leveraging your home’s equity
- No need for a second mortgage
- Access funds for home improvements or renovations
Eligibility
- At least 20% equity in your home
- Closing period of 30 to 45 days
- Minimum credit score of 620
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What is a Cash-Out Refinance?
A cash-out refinance lets you access cash by tapping into the equity you’ve built in your home. Typically, homeowners only benefit from their home equity when they sell, but a cash-out refinance allows you to use that equity now without selling.
Essentially, you’re replacing your existing mortgage with a new one, and during this process, you receive cash directly into your bank account. The tradeoff is that your total mortgage balance will increase by the amount of cash you take out.
Why Consider a Cash-Out Refinance?
A cash-out refinance can be a smart way to leverage the equity in your home for financial flexibility. While you can use the funds however you like, common uses include financing home renovations, paying off debts like student loans, car loans, or credit cards, consolidating debt at a lower interest rate, covering unexpected expenses, or even making a down payment on a second property.
Keep in mind that a cash-out refinance changes the terms of your mortgage and may extend your repayment timeline, so it’s important to ensure that the additional cash outweighs the adjustments to your current loan.
How Much Cash Can You Access with a Cash-Out Refinance?
The amount of cash you can take from a cash-out refinance depends on the equity you’ve built in your home.
Home equity is the portion of your home that you truly own. For example, if your home is valued at $500,000 and you owe $200,000 on your mortgage, your equity would be $300,000—or 60%.
You can grow your equity in two ways:
Paying down your mortgage: As you make monthly payments, your loan balance decreases and your equity grows.
Home appreciation: Your home can increase in value over time naturally or through upgrades like remodeling, adding a pool, or modernizing fixtures.
A cash-out refinance converts part of your equity into cash. After the refinance, most lenders require you to retain at least 20% equity in your home.
Using the example above, if your home is worth $500,000 and you owe $200,000, you could access roughly 40% of your home’s value—about $200,000. This would result in a new mortgage of $400,000.
Remember, an official appraisal will determine your home’s current value before your lender finalizes the loan.
Requirements for a Cash-Out Refinance
The specific requirements for a cash-out refinance depend on the type of loan you choose to replace your current mortgage.
Conventional Loans
Conventional loans are the most common choice for cash-out refinances. To qualify:
Your new loan amount must stay below your county’s conforming loan limit ($647,000 in Texas, $970,000 in high-cost areas of California).
You must maintain at least 20% equity in your home after the cash-out refinance.
A minimum credit score of 620 is required.
Requirements for a Rate and Term Refinance
The requirements for a rate and term refinance depend on the type of loan you choose.
Conventional Loans
Conventional loans are the most common choice for cash-out refinances. To qualify:
Your new loan amount must stay below your county’s conforming loan limit ($647,000 in Texas, $970,000 in high-cost areas of California).
You must maintain at least 20% equity in your home after the cash-out refinance.
A minimum credit score of 620 is required.
Jumbo Loans
If your new mortgage amount exceeds your county’s conforming loan limit, a jumbo cash-out refinance may be your option. Guidelines vary depending on the bank or credit union purchasing the loan after closing, but jumbo loans generally have stricter requirements than conventional loans. To qualify for the best rates, you typically need a credit score of at least 720 and a minimum of 20% equity in your home.
FHA Loans
FHA loans are a popular choice for cash-out refinances because they allow for lower credit scores, starting at 580. Borrowers must maintain at least 20% equity in their home to qualify.
VA Loans
VA cash-out refinances are unique because there is no equity requirement. Eligible veterans can borrow up to 100% of their home’s value, making it a flexible option for qualified buyers.
Pros & Cons of a Cash-Out Refinance
Like any financial strategy, a Cash-Out Refinance comes with advantages and considerations, though the benefits often outweigh the drawbacks.
Pros
Fund Home Renovations
Home improvements can be costly, and many homeowners don’t have extra cash readily available for updates like a new kitchen, bathroom remodel, or backyard upgrades. Using a cash-out refinance lets you access your home’s equity to fund these projects without dipping into savings. Beyond making your home more enjoyable, these upgrades can increase your property’s value, turning your investment into a smart financial move.
Consolidate High-Interest Debt
Mortgages generally carry lower interest rates than credit cards, personal loans, or auto loans. With a cash-out refinance, you can use your home equity to pay off higher-interest debt, consolidating it into a single, lower-interest mortgage payment. This strategy can reduce monthly expenses and save money over time.
Additional Benefits of a Cash-Out Refinance
Cover Unexpected Expenses
Life can be unpredictable—unexpected costs like medical bills, car repairs, or tuition payments can arise at any time. Instead of dipping into savings or retirement funds, a cash-out refinance allows you to tap into your home’s equity to manage these expenses comfortably.
Free Up Capital for Investment
If you have opportunities to earn a higher return outside of your home, a cash-out refinance can provide liquidity to invest elsewhere while keeping your primary mortgage in place.
Fund a Down Payment on Another Property
Looking to purchase a second home, rental property, or vacation home? A cash-out refinance on your primary residence can provide funds for a down payment. With careful planning and coordination with your lender, this strategy can help you expand your real estate portfolio while leveraging the equity in your existing home.
Cons / Considerations of a Cash-Out Refinance
Closing Costs
A cash-out refinance comes with closing costs, such as appraisal fees, underwriting fees, and title fees. It’s important to evaluate whether the cash you receive from the refinance outweighs these associated expenses.
Time to Access Funds
If you need cash immediately, a cash-out refinance may not be the fastest option. The process typically takes 30 to 45 days from application to funding. While personal or hard money loans may provide quicker access, they usually carry higher interest rates than a mortgage.
Changes in Loan Terms
Refinancing replaces your current mortgage with a new one, which may result in changes to your interest rate, monthly payment, and loan structure.
Longer Payoff Period
Depending on the new loan term, it could take longer to pay off your mortgage. For example, refinancing a mortgage with 20 years remaining into a 30-year loan adds an extra 10 years to your payoff timeline.
Reduced Home Equity
A cash-out refinance lowers the equity you’ve built in your home. As a result, when you eventually sell your property, your share of the proceeds may be smaller than it would have been without the refinance.
How a Cash-Out Refinance Works
The first step in a cash-out refinance is determining how much money you want to access. If your goal is home renovations, gather contractor quotes to estimate costs. If you plan to pay off debt, calculate the total amount needed.
Once you know your target, reach out to one of Jeremy Boillot’s loan experts. They will help estimate your current equity and the potential cash you can access. After this consultation, you’ll complete an online loan application. The team will monitor interest rates and lock in your rate at the optimal time.
After submitting your application to underwriting, an appraisal will be ordered to determine your home’s current value.
The final step is attending a signing appointment to execute your closing documents, including the Promissory Note with your new mortgage terms. Cash-out refinances include a 3-day waiting period after signing, giving you the option to cancel if needed. Once this period ends, your cash will be available.
Cash-Out Refinance vs. Home Equity Line of Credit (HELOC)
Both cash-out refinances and HELOCs let you tap into your home equity, but they work differently.
A HELOC acts as a second mortgage alongside your original mortgage. When you open a HELOC, you receive a credit line with a maximum limit. You can draw from it as needed, giving flexibility, and make interest-only payments during the initial 10-year draw period. The downside is having two monthly mortgage payments—your original and the HELOC.
A cash-out refinance, on the other hand, replaces your original mortgage with a new, larger loan. You receive a lump sum at closing and keep just one monthly payment. While you don’t get a credit line to draw from incrementally, you simplify your finances and access your equity in a single transaction.
Is a Cash-Out Refinance Right for You?
If you’re thinking about refinancing your home, start by using our refinance calculator to get an idea of how different rates and terms could impact your monthly payments. This quick tool provides an easy way to explore your options.
There’s no universal answer when it comes to mortgage refinancing. The most reliable way to see if a cash-out refinance is right for you is to schedule a free refinance analysis with one of Jeremy Boillot’s mortgage experts. Our team will walk you through potential monthly payment scenarios, provide current interest rates, and answer any questions you may have to help you make the best decision for your financial goals.