A cash-out refinance in Florida allows homeowners to access cash by replacing their existing mortgage with a new, larger loan. True, there are many nuances in this process. For example, if rates have increased since you bought the property, the cost may not be worth it.
How cash-out refinance in Florida works
With a cash-out refinance, you take out a new mortgage that exceeds the current debt on the house. The difference between the new mortgage amount and the balance on the previous mortgage goes to you at closing in cash. And then, you can spend this money on repairs, debt consolidation, or any other needs.
Remember that not only will you receive a larger loan, but you will also have to repay it under different terms. For example, your mortgage rate will change. Therefore, sufficient information and understanding of all the risks and benefits is important when making such an important decision. And we’re here to shed some light on the cash-out refinance in Florida.
With a standard rate-and-term refinance, you get a new interest rate or mortgage term without changing your loan balance. With cash-out refinance, you take out a new loan that exceeds your current mortgage balance and keep the difference. The amount of money available to you depends on your home equity — how much your house is worth compared to the amount you owe.
Steps to getting a cash-out refinance
Determine your equity by subtracting what you owe on the loan from the home’s market value. For example, if your house is worth 400K and you have 100K remaining on your loan, you have 300K equity available.
Determine your maximum loan amount — typically 80% of the value of your home. Here, we are talking specifically about the property’s current market price, not the one when it was purchased. 80% of 400 thousand is 320,000.
- Subtract your current loan balance — how much you still owe on your home. 320000 – 100000 = 220000.
- Estimate the total amount of funds — in the example we got 220,000. That’s a significant amount!
- Compare rates from different lenders to get the best deal.
- Assess the deal’s benefit — try to calculate your new monthly payment and think about how comfortable you will be with paying it. If you’re unsure, looking for other refinancing options is best.
- Apply — just like when you got your first mortgage, you will again have to go through the appraisal and underwriting process before you can apply for a loan.
Requirements for cash-out refinance in Florida
Requirements may vary from lender to lender, but you will most likely need to meet the following criteria.
- Debt to income ratio of 45% or less. If the DTI exceeds 45%, then you may be required to provide reserve money that will be enough for six months of loan payments.
- A credit score of 620 is required to qualify for a loan. Achieving a higher score means unlocking a better interest rate.
- Home equity — at least 20% equity in your home to qualify for cash-out refinance in Florida
Advantages and disadvantages of cash-out refinance in Florida
You might consider a cash-out refinance if you need a large sum of cash. However, it’s important to understand the implications before making a decision. Since you’re using your house as collateral, you risk losing your home if you can’t make the payments. Let’s weigh the pros and cons so you can make an informed decision.
- Possibility of a Low-Interest Rate — although generally, the rates for cash-out refinance are higher than for other loans, you can still get a good deal. If, for example, rates were higher when you bought your home.
- Just one loan — other ways of leveraging home equity require a second mortgage.
- Access to a large amount of funds — you can cover significant expenses, like college tuition or home renovations.
- Opportunity to Boost Your Credit Score — paying off credit cards with cash-out refinance can improve your credit score by lowering your credit utilization ratio.
- Foreclosure risk — your home is put up as collateral, so you risk losing it if you suddenly cannot repay the loan.
- New terms — as stated above, the terms of your new mortgage may not compare favorably with the original loan terms. Also, pay attention to the total interest amount. Assuming you’re refinancing into a new 30-year mortgage, that could add years of repayment, possibly piling on a substantial amount of interest — even if you’ve lowered your rate.
- A lot of effort and time — when applying for a new mortgage, you must go through all the obstacles to obtaining a loan again. So, cash-out refinance is definitely not suitable for urgent withdrawal of funds.
- Closing costs — as with any refinance, you will have to pay closing costs ranging from 2% to 6% of the loan amount. Therefore, be prepared for this.
What other options are available?
You can use your capital without the cash-out refinance procedure. Several alternatives will allow you to borrow against your equity.
- Home equity loan — you borrow a lump sum, not too different from what you’d get with a cash-out refinance. However, since you aren’t touching your primary mortgage, its interest rate won’t change. With a home equity loan, you can typically borrow around 80% or more of your home’s value minus what you still owe.
- Home equity line of credit is a more flexible option, allowing you to receive money as needed.
Is cash-out refinance in Florida a good idea?
The answer depends on your financial plans and how good an interest rate you can get on your new loan. Of course, you shouldn’t apply for a cash-out refinance if you want to go on vacation or buy a car. You are using your home as collateral, so you should approach cash-out refinance responsibly and make all payments on time.
If you own a home in Florida and are considering a cash-out refinance, contact LBC Mortgage for a consultation. We will help you evaluate the benefits of a new mortgage, assess your financial situation, and help you find the best solution. Contact us today to get personalized answers to all your refinancing questions.