Many homeowners take advantage of their home’s equity by tapping it out to instantly get a large sum of cash. One can do this by applying for a Cash Out Refinance Loan. If you plan on getting a Cash Out Refinancing, there are five things you need to know first.
A Texas Cash Out is not a second mortgage
One common misconception is that a Texas Cash Out is a type of a second mortgage. However, this is not the case as one needs to pay for your home loan first before you can apply for a Texas Cash Out. This means one won’t get qualified for a Texas Cash Out if you are still on the process of paying off your first mortgage.
Remember that a cash-out will always be a cash-out
One of the Texas cash out loan rules is that once you pull your home’s equity, the title will still be one a cash-out status for the whole lifetime of the loan. It doesn’t matter how or where you use the money you got out of the credit. This means it will remain in the cash-out status until you’re able to pay off the loan in full. No regulation exists when it comes to a Texas Cash Out limitation.
Homeowners can borrow up to 80% of their home’s value
While the amount you can pull will depend on your lender and your situation, a borrower can get up to 80% worth of their property’s value. For example, your home’s value is at $100,000, and you owe $50,000 on that house. Your lender will pay for the amount you owe which is $50,000. You get a new loan for as high as $80,000 which is 80% of your property’s value. You get to cash out $30,000 which you can use for whatever reason you want.
Borrowers should be careful when it comes to spending their money
After all the rates and fees, you can choose to spend your money at will. However, one of the drawbacks of a Cash Out Refi is because it is so flexible, some homeowners tend to use the funds on unnecessary splurges like expensive purchases and luxurious vacations. The best way to use your new funds is to achieve a higher education, for emergencies and to consolidate debts with higher interests. Another way to make the most out of your Cash Out Refi is by using it for home improvement projects that offer the best Return On Investment.
A Cash Out Refinance has three alternatives
A Cash Out Refi is not the only way to convert your equity into cash. A Home Equity Loan allows you to collect a lump sum while offering a fixed interest rate. Home Equity Line Of Credit or HELOCs uses your house as the collateral, giving you a credit limit you can spend while the interest rate will depend on the prime rate. On the other hand, a Reverse Mortgage is for the elderly (aged 62 and above). This lets them draw cash without requiring older homeowners to pay monthly mortgage fees.