According to the Wall Street Journal, record numbers of mortgages were undertaken in 2022 thanks to an estimated $2.8 trillion in cash-out refinances. Evidently, refinancing is on the rise, as is home buying in Michigan. According to accounts, 18 luxury homes were bought in Michigan for more than $4 million in 2021.
Yet, why should you take cash out on your home? In our article, we hope to shed some light on the topic as cash-out refinance can be an excellent idea for many people. Taking a cash-out refinance loan can open up a world of new possibilities that might have previously been out of your reach. If you have built up enough good equity for your home, you might want to consider taking a cash-out refinance loan.
What Exactly is Cash-Out Refinancing?
Before we can look at the reasons why you should take cash out on your home, we thought it prudent to briefly detail what cash-out refinancing is. Essentially cash-out refinancing will replace your current home loan with a bigger mortgage.
By taking out a bigger mortgage, you will be able to access the cash difference between the two mortgages based on the amount borrowed and what you owe on your home.
What Are The Cash-Out Refinancing In Michigan Requirements?
If you hope to get approved for cash-out refinancing, you must meet Michigan mortgage lending requirements. These requirements can vary, and interest rates can differ, which is why you might want to consider consulting us to learn more. Have a quick look below to learn about the requirements you will likely need to meet.
- Credit score: Often, if you want to cash out on your home, you will need to have a high enough credit score. If you have a higher credit score, you’re likely to receive a better interest rate on your refinancing loan. However, usually, if you have a credit score of 620 or higher, you are unlikely to have any issues obtaining a refinancing loan.
- Seasoning requirement: Regardless of how much equity you have, you will need to have owned your home for at least six months before you will be able to apply for cash-out refinancing. There are expectations for this rule. For example, if you inherited the property or if the home you acquired was awarded to you legally. Additionally, if you have a home loan backed by the Federal Housing Administration, you will have to have owned your home for 12 months minimum before applying for an FHA cash-out refinancing loan.
- Debt to income ratio: If you hope to obtain a cash-out refinancing loan on your home, you will need to have a debt to income ratio of no higher than 45%. Your debt to income ratio refers to your monthly debt payments, including your current mortgage divided by your gross monthly income.
- Home equity: Having decent home equity is important for those wishing to apply for a cash-out refinancing loan. For this type of mortgage loan, you need to have a minimum of 20% equity in your home to qualify. Essentially, this means you need to have paid off a minimum of 20% of the current appraised value of your home.
Four Reasons Why You Should Consider Cash-Out Refinancing For Your Home
If you have discovered that you meet the requirements for a cash-out refinance loan on your home, you are likely wondering why you should take the final step and apply for this loan. To learn why you need to consider this loan type, have a look below.
1. You Can Use The Money You Receive For Home Improvement Projects
Did you buy a fixer-upper in Michigan or have had your house for many years and would like to undertake a few home improvement or remodeling projects? If so, taking out a cash-out refi loan could be beneficial.
If you take out this loan, you will not only be able to do the renovations you have always wanted (dream kitchens and bathrooms included), but you could also be increasing the value of your home.
Certain home renovations have higher returns on investments. By choosing the right renovations, you could quickly pay off your cash-out refi when you sell your home and have a greater chance of making a sizable profit.
2. You Can Consolidate Your Debts
If you have student loans, a personal loan, credit card debt, a car loan, or all of the above, you could consolidate your debts by taking cash out on your home. Since most of these debts likely have higher interest rates than your mortgage, you can consolidate these multiple debts into one single monthly repayment at a lower interest rate.
Additionally, you could use your cash-out refi loan to pay off as many debts as possible. If you pay off your student loan or credit card bills with a refi loan, you will likely pay significantly less than you would if you kept paying according to the original terms.
3. You Can Improve Your Credit Score
One of the best reasons why you need to consider taking cash out on your home is to improve your credit score. It’s notoriously hard to improve one’s credit score. Still, by using a cash-out refinancing loan, you can pay off your debts which can positively impact your credit score by reducing your credit utilization score.
4. You Can Pay For Your Child's College Education
If your child is excitedly ready to take the next step in their life and attend college and you don’t want them to have to begin their life in debt, taking out a cash-out refi is a good idea.
You can help pay for your child’s college education if you take out this loan. Ultimately, with your help, your child won’t have to take out private student loans at a higher interest rate than you will be paying for your cash-out refi.
Now You Know Why You Should Take Cash Out On Your Home!
As can be evidenced, there are many positives involved with taking cash out on your home with a refinancing loan. By taking out this loan, you will be able to undertake that home remodeling project you have had on the back burner. Additionally, you can also take some of the stress away from your child by paying for their college education or some of the stress away from yourself by consolidating your debts.
Yet, we understand that it can be confusing to establish if you are eligible for cash out on your home. That’s why you should consider speaking with one of our experts at Loan X Mortgage. We have the necessary skills and experience to help you take out a cash-out refi on your home. With our assistance, you are a step closer to achieving your goals.