Cash-out-refinance in Illinois is an opportunity to convert your home equity into a large sum. For example, if you have debts or unexpected spending. However, be prepared for a higher monthly payment and a high-interest rate. Let’s figure out whether this financial option is worth it and in what cases you should choose cash-out-refinance in Illinois.
What is Cash-out-refinance in Illinois, and how does it work?
So, you already have a mortgage — to make a cash-out-refinance, you take out a new mortgage for a larger amount. With the help of a second mortgage, you close the first one and keep the difference between the amount you owe on the old loan and the amount you borrowed. Your new loan depends on how much equity you have built up in your home. The important thing is that you won’t be able to borrow all the equity in your home.
A cash-out refinance in Illinois requires more effort than a regular refinance.
How do you convert home equity into cash?
Make sure you can afford the loan
Lenders will carefully review your income, assets, and credit to ensure you can afford the new monthly payment. Generally, refinancing will make costs more expensive.
Find out the value of your home
A home appraisal is a standard part of the process. True, here you have several options to determine the value of your home:
- You can refuse the appraisal and accept the home’s value as determined by the lender.
- Acceptance of cost plus property data — this option also excludes the appraisal
- Hybrid valuation or collaboration between appraiser and real estate data collector
Determine the amount of new debt
According to cash-out-refinance in Illinois, you can borrow no more than 80% of the value of your home. This concept is called LTV — loan-to-value ratio, and it measures how much of your home’s value is borrowed.
Choose the best lender
Take your time and compare rates from 3-5 lenders — this can save you money in the future.
Determine the amount of cash you will receive
The lender can give you a precise figure by subtracting your current mortgage balance or closing costs.
Requirements for cash-out-refinance in Illinois
To qualify for a refinance, you will need at least 20% equity and meet specific requirements:
- Minimum credit score is 620 — don’t be discouraged if your score is lower. You can still use an FHA loan with more lenient requirements.
- The maximum debt-to-income ratio is 43%.
- You take out a loan secured by your primary residence. But conventional loans will allow you to borrow money against an incestuous property or second home — you will have to pay a higher interest rate.
- You may encounter additional fees or high-interest rates if you have an apartment.
- The waiting period is up to 12 months — this is how long you will have to wait until the cash-out-refinance is completed if you have recently refinanced.
- Closing costs range from 2% to 6%.
Is cash-out-refinance a good idea in Illinois?
- You can use the money for absolutely any purpose: investments, debt consolidation, tuition fees, and so on.
- The interest can be deducted from taxes — for example, if you use the money to renovate your home, you may get a tax break.
- Minimum 20% equity
- If the value of your home has fallen or you have made a small down payment, a cash-out refinance in Illinois may not be an option.
- You lose part of the accumulated capital — which means you will receive less profit when selling the house
- High monthly mortgage payment
- Increasing the mortgage rate — cash-out-refinance has higher rates than refinancing with a reduction in rates
- A low credit score will also increase your rate
When is the best time for cash-out-refinance in Illinois?
Of course, the best times are when rates are lower than the interest rate on your mortgage. But, if you don’t want to wait, there are still several reasons that make the deal profitable:
- Cash-out-refinance is a more attractive and less expensive solution than a consumer loan
- You use the money to build equity—for example, by making renovations that increase the value of the home
- Debt Consolidation – Considering that credit cards charge a staggering average interest rate of 23.55%, it may make a lot of sense to use a cash-out refinance
Apply for cash-out-refinance in Illinois
LBC Mortgage has extensive experience helping homeowners throughout Illinois use cash-out refinancing. We will work with you to understand your unique financial situation and goals and help you find the right lender and loan program for your needs. Our experienced Illinois mortgage broker will be with you throughout the process to ensure everything goes smoothly.
We have been serving the real estate markets for about 15 years, and our main goal is to ensure that you get the best cash-out-refinance deal in Illinois.