A cash-out refinance can be a pathway to making improvements on your home, paying off other debts, and even just for taking a vacation. By taking out a new loan worth more than your original mortgage, you can start putting that extra cash to use however you want. But just how much money can you get with a cash-out refinance?
When setting your goals for your cash, you also want to make sure you’re not adding far too much additional debt. Luckily, the way cash-out refinance loans are structured will help protect you from getting too far over your head. These three factors will determine how much money you can take out, while you can figure out how much you should.
- You’ll Need To Have Equity In The Home
No, you cannot do a cash-out refinance immediately after purchasing a home. Most lenders will require that you have equity built up in the property as a guarantee that you won’t take the money and run. With a good deal of equity at risk, lenders are betting that you’ll take the necessary steps to keep your home. Most lenders require you to have at least 30% equity in your home.
- You Can’t Take Out Full Value
You typically can’t refinance your loan for more than 80% of your equity, which is calculated by subtracting your outstanding mortgage balance from the home’s appraised value. Since a professional appraiser must determine the value, your home may not be worth what you think.
- Fees To Be Aware Of
As with other loans, prepare to pay closing costs when you do a cash-out refinance. These costs can range anywhere from 3-6% of the loan, so make sure you’re not losing too much of your needed cash. You may also need to pay for Private Mortgage Insurance (PMI) if your new loan is more than 80% of the value, which can be around 0.05-1% of your loan each year.