Texas Cash Out Refinance Loans
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What Is a Cash-Out Refinance Loan?
Financial professionals often describe cash-out refinance loans as a cross between an equity loan and a traditional refinanced mortgage. Americans all across the country are using this method to withdraw equity in cash from their homes. In fact, cash-out refinances climbed by 24% over one year by the end of 2019.
When homeowners refinance their mortgage, they get cash for a percentage of the difference between the remaining value of the loan and the current value of the home. Texas law allows homeowners to take out up to 80% of the home equity. The new mortgage then covers the balance of the old mortgage and creates a new loan.
Your Detailed Guide to Cash-Out Refinance Loans
The Cash-Out Refinance Process
1- Credit Check
Before applying for any loan, make sure to check your credit score. There are free programs online that you can use. You can also request a free copy from the three leading credit reporting agencies if you haven’t done so in the past 12 months.
2- Home Appraisal
Rock Mortgage may request a home appraisal to confirm the value of the property, which may cost you a few hundred dollars. Remember to inform us of any repairs or upgrades you have made to the home since you first purchased it.
3- Locked Interest Rate
Some homeowners prefer to lock the interest rate quote as soon as possible for a specific period. This gives some protection during the closing process, which may take up to 45 for it to complete.
4- 12 Day Letter
Texas law requires homeowners to sign a letter that details the cash-out refinance process in the state. Even when cash-out loans may take a shorter time to complete, the law requires a 12-day waiting period between the initial application and loan closing.
5- Your Loan Closing
Homeowners may need to dip into their new cash reserve to pay for the closing costs. Note that if you decide to roll the closing cost back into the new loan, it may lead to higher interest rates.
The Cash-Out Refinance Eligibility Requirements
1- Credit Score
Homeowners need at least a credit score of 660 to refinance a home loan in most instances. While it’s essential to check your credit score, note that lenders may use a different scoring model than free platforms do.
2- Wait period
Texas law allows homeowners to withdraw equity from their homes via a cash-out refinance loan once per year. However, if the house is an investment property, homeowners might be able to remove equity more often.
3- Equity
Texas law requires homeowners to leave at least 20% of the equity in their homes at all times. Because of this, it’s crucial to ensure you have enough capital to cover the cost of the loan and have money left over. This includes the closing and appraisal cost.
4- Proof of Income
Rock Mortgage’s underwriters need to review documents proving steady income. A year of W2s typically suffices for full-time employees. Business owners and self-employed workers may need to supply at least two years of tax returns to show proof of consistent income.
5- Debt-to-Income Ratio
When applying for a mortgage the first time, your lender considered your DTI. Rock Mortgage also considers this for cash-out refinance loans. Each person’s financial situation is different, but generally speaking, homeowners should aim for a DTI of 36% or less.
Benefits of a Texas Cash-out Refiance Loan
A Texas cash-out refinance loan offers several potential benefits for homeowners looking to access their home equity. However, it's important to note that regulations and benefits can change over time, so it's a good idea to consult with a financial advisor or mortgage professional to get the most up-to-date and personalized information. As of my last knowledge update in September 2021, here are some potential benefits of a Texas cash-out refinance loan:
- Access to Home Equity: A cash-out refinance allows homeowners to convert a portion of their home equity into cash. This can be useful for funding home improvements, paying off high-interest debt, covering educational expenses, or handling unexpected medical bills.
- Lower Interest Rates: If current mortgage rates are lower than the rate on your existing mortgage, you might be able to secure a more favorable interest rate with the cash-out refinance loan. This could potentially lower your monthly mortgage payments.
- Consolidation of Debt: You can use the cash from the refinance to pay off higher-interest debts, such as credit cards or personal loans. This could potentially save you money in interest payments over time.
- Tax Deductibility: In some cases, the interest paid on a cash-out refinance loan might be tax-deductible. However, tax laws can change, so it's important to consult with a tax advisor to understand the current regulations.
- Single Loan Payment: If you have multiple debts, consolidating them through a cash-out refinance can simplify your finances by turning various payments into a single monthly mortgage payment.
- Home Improvement: Investing the cash from the refinance into home improvements can increase the value of your property. This could be particularly advantageous if you plan to sell your home in the future.
- Flexible Use of Funds: The cash you receive from a cash-out refinance isn't restricted to specific purposes. You have the flexibility to use the funds as you see fit.
- Potential for Improved Credit Score: Paying off high-interest debt with the cash from a refinance could potentially improve your credit score over time, as it might reduce your credit utilization rate.
However, it's essential to consider the potential drawbacks and risks as well. When you opt for a cash-out refinance, you're essentially taking on a new loan that might extend your mortgage term or increase your monthly payments. Additionally, using your home equity as a source of funds means you're putting your property at risk. If you're unable to make the payments, you could face foreclosure.
Get answers to all your Texas Cash-Out Refinance Loans questions by contacting Rock Mortgage during business hours. You can also request a quick quote by filling out our online form at any time, day or night.
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Are you ready to turn your homeownership dreams into reality? Look no further than Rock Mortgage, your premier choice for lending solutions in the heart of Houston!
Why Choose Rock Mortgage?
- Local Expertise: We're not just lenders; we're your Houston neighbors. With years of experience in the local real estate market, we understand the ins and outs of Houston's unique dynamics. Our insights help you make the best financial decisions for your future.
- Wide Range of Options: Whether you're a first-time homebuyer, looking to refinance, or exploring other financing options, we've got you covered. From traditional mortgages to cash-out refinances and more, Rock Mortgage tailors solutions to fit your needs.
- Competitive Rates: Your financial well-being is our priority. We offer competitive interest rates and terms that ensure you're getting the most out of your investment. Our transparent pricing keeps you in control.
- Seamless Process: Say goodbye to complicated paperwork. At Rock Mortgage, we streamline the lending process using cutting-edge technology. Quick approvals, minimal paperwork, and efficient communication mean you'll be holding your keys sooner than you think.
- Personalized Care: Your journey is unique, and we treat it that way. Our dedicated team provides personalized guidance from start to finish. We help you understand your options and make informed decisions that align with your goals.
- Houston's Trusted Choice: Our glowing customer reviews and strong reputation speak for themselves. Join the Rock Mortgage family and experience the difference firsthand.
- Education Matters: We believe in empowering our clients. We'll educate you about your loan options, ensuring you're comfortable and confident throughout the process.
- Your Partner for the Long Haul: Beyond the transaction, Rock Mortgage is here for you. From future refinancing needs to ongoing support as your financial situation evolves, we're with you every step of the way.
Ready to Rock Your Mortgage?
Your path to homeownership begins with a single step. Let Rock Mortgage be your guide. Contact us today to explore your options, receive personalized guidance, and take the first step toward your dream home.
Commonly Asked Questions About Cash-Out Refinance Loans
Does Texas regulate second homes and investment properties?
Texas does not regulate cash-out refinance loans for investment properties and second homes. At present, the laws only apply to primary residences.
Is the “Once a Texas equity loan always a Texas equity loan” clause still valid?
As of January 2018, this clause is no longer effective in Texas. Homeowners are now free to refinance their homes using any suitable financial product available after using a cash-out refinance loan.
What are some benefits of cash-out refinancing?
Cashing out has several benefits for homeowners at different stages of their lives:
- Use the cash for any purpose, such as starting a business or paying off debt.
- Buy out a co-owner after a divorce or business split.
- Get a shorter-term loan to match a smaller balance.
- Take mortgage-interest deductions when money gets reinvested into the property.