How much equity can I borrow in a cash out refinance?

3d render of rising arrow, shaped like a house

There are many variables when it comes to home loans, and it’s not as straightforward as saying you can borrow $25,000 or $50,000 in equity.  The amount of equity you can borrow in a cash out refinance depends on several factors:

 

  • Your Home’s Current Market Value
  • Loan Amount
  • Primary Residence Occupied by the Owners or an Investment Property
  • Single Family Residence or Multi-unit
  • Credit Score
  • Monthly Income and Other Monthly Debt Obligations or Expenses

 

  1.  Your home’s current market value will be one of the most important factors in determining how much you will be able to borrow in a cash out refinance.  Depending on property type and occupancy, loan guidelines allow for a certain percentage of the current market value to be borrowed, up to maximum of 85%.

This means if your house is worth $100,000, and you borrow $85,000 (including the funds to pay off your old mortgage and your cash out), you will be borrowing 85% of the home’s current market value.  The market value used for loan purposes is always determined by a professional appraisal.  (*Exception for delayed financing if you paid all cash for your property.  Contact us for more details.)

Even though you can borrow up to 96.5% (or even 100% in the case of a VA loan) to purchase a home, when taking cash proceeds, the allowable percentage is lower.

The lower the percentage, also call the “loan-to-value ratio” or “LTV”, the better your interest rate will be.  Generally anything 60% LTV or lower will qualify for the best interest rate.

  1.  Loan Amount – The loan amount is important because loans within conforming loan limits will have more lenient guidelines, while larger balances, or non-conforming loan amounts, will have stricter guidelines.  Loans between $417,001 – $625,500 are considered high balance and allow for less cash out.  Jumbo loans over $625,500 generally do not allow for ANY cash to be taken out, and are only used for purchasing a property.
  2.  Primary Residence Occupied by the Owners or an Investment Property – An owner occupied property can be borrowed against up to 85% of the value, while the limit on an investment property is 75% of the market value.  These limits and guidelines do change from time to time, especially as markets improve and property values rise.
  3.  Single Family Residence or Multi-unit – This is similar to the previous point.  A single family residence (only one house on the lot) can be leveraged more than a multi-unit or small apartment building (2-4 units).
  4.  Credit Score –  While loans within the conforming limits will allow for credit scores as low as 620, cash out loans on higher balance loans may require credit scores as high as 720.  Required minimum scores will be directly related to the loan amount, type of property, and occupancy of the property.  These are very general guidelines; please contact us with more details so we can determine exactly which programs you can qualify for.

6.  Monthly Income and Other Monthly Debt Obligations or Expenses – Your monthly income compared to your proposed monthly debt obligations will be used to determine how much of a payment you can afford each month.  Your proposed monthly debt obligations will take into account your new mortgage payment, along with any other debts that are to remain as is.  Debts you are paying off through the loan and closing the account may be excluded from your monthly debt calculation.  Debt that has less than 10 months of payments remaining may also be excluded from your debt calculation.