If you're a homeowner in Houston, Texas and you're looking for a little extra cash, you may be wondering if a cash out refinance is the right option for you.
A cash out refinance allows homeowners to borrow against their home's equity to get a lump sum of money. This can be helpful if you need to pay off debt or make some home improvements.
In this blog post, we will discuss how a cash out refinance works and answer some common questions about them, especially the rules pertaining to a cash out refinance in Texas.
What is a Cash Out Refi?
A cash out refinance is a type of loan that allows homeowners to borrow against their home equity in order to withdraw cash. The amount of money you can borrow will depend on your home's value and the amount of equity you have in it.
For example, let's say your home is worth $200,000 and you have $50,000 in equity, meaning you only owe $150,000. This means you could theoretically borrow up to $150,000 while withdrawing $50,000 through a cash out refinance.
The borrowed money can be used for any purpose, such as debt consolidation, home improvements, or even a big vacation or school tuition. Once you take out a cash out refinance, your new loan will replace your existing mortgage. This means you'll have a new mortgage with a new interest rate and monthly payments.
Is Cash Out Refinancing Available in Texas?
Yes, cash out refinancing is available in Texas. However, the rules for cash out refinancing are a bit different than in other states, so it's important to understand them before you apply. For example, in Texas, you can only borrow up to 80% of your home's value. This percentage is the loan–to–value ratio (LTV).
This means that if your home is worth $200,000, you can only borrow up to $160,000 through a cash out refinance. Of that amount, the cash out would be dependent on how much you owe and how much equity you’ve built up. For example, in this scenario, if you owe $150,000, your cash out amount would be $10,000.
It's also important to note that Texas has what's called a "12-day cooling-off period." This means that you can't finalize your cash out refinance until 12 days after you receive the initial loan offer. You’ll want to build that cooling period into your timeline as you plan your cash out refi.
Can You Pull Cash Out from an Investment Property in Texas?
Yes, you can pull cash out from an investment property through a cash out refinance. However, there are some additional restrictions that apply in Texas. For example, in Texas, you can only borrow up to 70% of the property's value if it’s not your primary residence.
This means that if your investment property is worth $200,000, you can only borrow up to $140,000 through a cash out refinance. And once again, the actual cash withdrawal amount will be based on the difference between the LTV and what you owe.
Is There a Maximum Cash Out Refinance Amount?
Yes and no. There is a maximum cash out refinance amount by percentage, not dollar. In Texas, that means you can borrow up to 80% of your home's value, but there is no maximum dollar amount. So whether your home is worth $200,000 or $2,000,000, the rule still applies.
If you're looking for a larger loan amount, you may need to look into other financing options.
How to Prepare for a Cash Out Refi in Houston, Texas
If you're considering a cash out refi on your Houston home sometime soon, this is what you need to know to get started.
The first step is to determine how much money you can borrow. You can do this by estimating your home's value and subtracting the amount of equity you have. You can easily check your equity by looking at your latest loan statement to see what you owe.
To get an idea of what your home might currently be worth you can search online for sites that give estimates or look at comparable homes that have recently sold in your neighborhood.
Next, you'll need to get a copy of your current mortgage statement and loan agreement. This will help you understand your current interest rate and monthly payment.
After that, you'll need to find a lender who offers cash out refinances. Be sure to compare interest rates and fees between different lenders. Keep in mind that interest rates on a cash out refinance loan may be higher than typical loans.
For more information on current rates and terms, contact the best local mortgage team in Houston, Texas. That way you’ll get the most accurate numbers for your area.
Once you've chosen a lender, you'll need to provide them with some basic information about your home, such as the address and estimated value. You'll also need to provide proof of income and employment. The lender will then do a full credit check and appraisal of your home.
Finally, when you're approved, you'll go through the same closing process as with a regular mortgage. You'll need to provide documentation such as ID, proof of income and employment, and title insurance.
Takeaways on a Cash Out Refinance
If you're a homeowner in Houston, Texas a cash out refinance can be a great way to take advantage of this hot market. Whether you need money for home improvements, paying off debt, or other expenses, our team is happy to assist in securing you a great rate and processing your cash out refi as quickly as possible. Reach out today!