Cash Out Refinance
If you have a large equity position in your home and are in need of liquid assets you should consider a financial product know as a cash out refinance. A cash out refinance is similar in every way to a regular home loan refinance with the one difference being that you walk away from the cash out refinance closing with a large check to go with a new low interest rate on your home loan or mortgage.
Cash out Refinance-Who Qualifies
In general a cash out refinance is restricted to homeowners who have large equity positions in their home. This would typically be homeowners who have lived in a home for a long period of time without touching the equity that they have built up over time or homeowners who inherited homes free and clear. Basically a cash out refinance is for any homeowner who has an equity position of over 20% of their homes current appraised market value.
Cash Out Refinance-Equity
If you are wondering just how much equity you have in your home the absolute surest way is to hire an appraiser to value your home. If you use an appraiser who regularly appraises homes for lenders you will get a value for your home that will be similar to that that a lender would who was considering giving you a cash out refinance loan. The drawback with this is that it will cost you somewhere in the region of $250-$500 depending on the area you live in and the sq footage of your home.
Another way of estimating the current value of your home in today’s market is to ask a real estate agent to do a CMA on your home. A CMA or comparative market analysis compares your homes value to three recently sold homes in your neighborhood and also three currently listed homes in your neighborhood taking into consideration square footage, bathrooms, lot size, condition, age, etc.
As in hiring a realtor to sell your home it is good practice to ask three real estate agents to do a CMA on your home. The middle valuation of the three will most probably represent your homes current market value.
By subtracting your current mortgage balance form your homes current market value you will know your equity position.
Cash Out Refinance-Equity Line of Credit
An equity line of credit is a type of cash out refinance where funds or cash is made available to you but you are not charged interest or do not need to make any repayments unless you draw down the funds, write a check against the funds or use the debit card supplied by the lender.
Typically an equity line of credit comes in the form of a checking account with a debit card attached. Unless you write a check or use the debit card the equity line of credit remains untouched and there is no interest accrued and no repayment is required.
It should be remembered that even though you have not used the funds from your equity line of credit cash out refinance there will be a lien or mortgage placed against your home for the full amount of the equity line of credit cash out refinance.
