Before Jumping Into The Consolidation Process Understand Your Situation

Have you done a cash-out loan with your second mortgage? If this is the case, the new loan you refinance for ount for which you qualify may be reduced. Its important to be aware of this drawback before jumping into the refinance process.

The rate/term refinance will be important to weigh. This loan is an adjustment on the interest rate and terms of your current loan. In most mortgage consolidations, this loan is considered safer. The lender has assurance that the borrower isnt pocketing any money or reducing the amount of equity they have in the property.

Drawbacks To Refinancing A Home Equity Loan

Refinancing your home equity loan isnt without fault. For one, youre putting your house on the line and thats always a risk you shouldnt take lightly.

When Is Refinancing Your Mortgage Not A Good Idea

As attractive as refinancing your mortgage may seem, its not the right answer for everyone. Here are a few reasons why refinancing may not be the right move:

  • Your home can become collateral on the debt
  • Closing costs on the refinancing can be costly
  • The length of time that youll be paying the loan off may increase
  • The amount youre financing could require you to pay private mortgage insurance

Cash Out Refinancing Limits

When consolidating home loans many borrowers also choose to withdraw a portion of their equity from their home to pay off other debts. Lenders frequently allow borrowers to obtain up to 80% or even 85% of their home equity on conventional home loans.

Borrowers seeking to borrow above this amount will likely face additional scruitiny during the qualification process if they are approved they are likely to pay significantly higher interest rates.

Government-backed programs have hard caps on the loan-to-value of refinances where equity is withdrawn. The limit on either FHA or USDA sponsored cash out refinance loans is a 80% LTV. Veterans who are refinancing VA home loans while taking cash out have an LTV limit of 90%.

Heloc Cash Out Refinance Or Home Equity Loan

Your home is your biggest asset. It can also be a good source of money to do things like pay for college, pay for home improvements, or consolidate high-interest debt. That’s because you can borrow against the value of your home equity to get cash when you need it.

There are three ways to do this. You can get a home equity line of credit also known as a “HELOC”. You can get a cash out refinance, where you replace your current mortgage with a new mortgage for a higher amount and get the difference in cash at closing. Or you can get a home equity loan which is sometimes called a “second mortgage”. There are advantages and disadvantages to each one. We’ll explain the differences between these loans to help you choose the right one for your needs.

Qualifying For The Refinance

This refinance is like any other mortgage application, with complete credit checks, income verification and debt evaluation. For the best rates, you’ll need a good credit score, over 620. Make sure your overall debt-to-income ratio falls below 40 percent, meaning your debt bills aren’t more than $400 per $1,000 of monthly income to qualify for loan programs.

Qualifying For Heloc And Home Equity Loans

Lenders wont give you an equity loan or an equity line of credit unless you meet underwriting standards. Even if you have enough equity in your house to cover what you want to borrow, lenders dont want to have to foreclose to get their money back. For that reason, they consider other factors, including your income, credit score, other debts, investments, loan-to-value ratio and debt-to-income ratio.

Author RH