You need a real chunk of money. Maybe it’s a business opportunity, maybe it’s a renovation, maybe it’s debt that’s eating you alive. And the first answer you got was a cash-out refinance. Sometimes that’s exactly right. A lot of the time it isn’t, and the difference can run into the tens of thousands of dollars.
Short on time? Text me your numbers at 704-890-7168 and I’ll tell you what’s realistic, or jump to the calculator.
A cash-out refinance replaces the mortgage you have with a new, bigger one. The new loan pays off the old loan, and you walk away with the difference in cash. In other words, you’re not adding a loan. You’re trading the one you have for a larger one, at today’s rate, on the whole balance.
That last part is the one people skip over. Say you owe $300,000 and you want $100,000 out. A cash-out refi doesn’t put a new rate on the $100,000. It puts a new rate on all $400,000. If the loan you’re paying off was a good one, you just repriced $300,000 of cheap money to get your hands on $100,000.
So the real question is never “can I do a cash-out refinance?” It’s “what does it cost me compared to the other ways of getting the same money?”
There are times it’s clearly the better tool. Here’s when I’d lean toward it:
If none of those is you, and you’ve got a first mortgage in the twos, threes or fours, run the numbers on a second mortgage or a home equity line before you sign anything. The calculator below does that comparison for you.
It comes down to loan-to-value. In other words, how big the new loan is compared with what the property is worth. On a primary residence, most cash-out programs top out around 80% of value. Investment properties usually land lower, often 70 to 75%. Some non-QM programs stretch a little further or a little less depending on your credit and how you document income.
Quick math. Your house is worth $600,000. Eighty percent of that is $480,000. You owe $300,000, so the most you could gross is about $180,000, and closing costs come out of that.
And keep in mind, closing costs on a refinance are figured on the whole new loan, not just the cash you’re taking. So they’re bigger than people expect. That’s one more reason a smaller loan that only covers the new money can win.
Yes, and this is where most of my clients come from. A conventional cash-out refinance wants two years of tax returns. If you write off as much as a good CPA tells you to, the income on those returns may not support the new payment. That’s not a you problem. It’s a paperwork problem.
Non-QM cash-out programs qualify you differently:
You’ll pay more than a conventional loan for that flexibility. Pricing moves with your credit score and how much equity you leave in the property. But for a lot of business owners, it’s the difference between getting the money and not getting it.
This is called seasoning. Conventional loans generally want your current loan to be at least 12 months old before you can take cash out. Many non-QM and DSCR programs allow it sooner, some at six months. If you bought the property with cash, there’s a separate path called delayed financing that can let you pull money back out shortly after closing.
These rules move from lender to lender and year to year, so ask before you plan around a date.
This is the comparison that matters most. Put in your own numbers. The calculator shows what you’d get with a second loan on top of your current first, and then what refinancing everything would cost you instead. You set every rate, so it works no matter where the market is when you read this.
One loan, one payment. New rate on the entire balance. Closing costs on the entire balance. Best when your current rate isn’t worth keeping or you owe very little.
Your first loan stays exactly as it is. Smaller loan, smaller closing costs. Higher rate, but only on the new money. Two payments. Best when your first mortgage rate is worth protecting.
If you want the full walkthrough of the second-lien side, I wrote it up here: how to get equity out of your house without refinancing.
I’ll tell you when I think it’s a bad idea. I’d rather lose the loan than put you in one you regret.
What the property is worth, what you owe on it, your current rate, and what you need the money for. That’s enough for me to tell you whether the refinance or a second loan wins. And if neither does, I’ll tell you that too.
Scott Hastings, NMLS #926762
Call or text 704-890-7168
Yes. The new loan pays off your existing mortgage completely, and you get the difference in cash. Your old rate, payment and payoff date go away and the new loan’s terms apply to the entire balance.
On a primary residence most programs want you to keep at least about 20% equity after the cash-out, so the new loan is no more than roughly 80% of value. Rentals usually need more equity left in, often 25 to 30%. Exact limits depend on the program, your credit and your documentation.
Yes. Non-QM programs let self-employed borrowers qualify with 12 or 24 months of bank statements, 1099s, a CPA-prepared P&L, or liquid assets. On rental properties, a DSCR cash-out refinance qualifies off the property’s rent instead of your personal income.
Cash from a refinance is borrowed money, so it generally isn’t treated as income. Whether the interest is deductible depends on how you use the money. Talk to your CPA about your situation before you count on a deduction.
Conventional loans generally want your current loan to be at least 12 months old. Many non-QM and DSCR programs allow cash-out sooner, some at six months. If you paid cash for the property, delayed financing may let you pull money out shortly after you buy.
If your current rate is low, a HELOC or second mortgage usually costs less because it leaves your first loan alone and only prices the new money. If your current rate is high, or you owe very little, a cash-out refinance is often cleaner. Run both through the calculator on this page.
Yes. You can use a conventional investment property cash-out or a DSCR cash-out refinance, which qualifies off the rent. Loan-to-value limits are lower than on a primary residence, and the rent generally needs to cover the new payment.
