For many Americans, a cash-out refinance is the most common way to take advantage of home equity and access money for home renovations, debt consolidation, or a down payment on an investment property. However, there’s some confusion regarding how long a cash-out refinance can take to close and whether it’s a good choice if cash is needed fast.
Want to know how long you can expect your cash-out refinance process to take?
A cash-out refinance is the process of taking out a new mortgage loan that is larger than the current loan. The goal is to satisfy the current loan on the home while also giving the homeowner access to a lump sum of cash. Borrowers need to be aware that closing costs will be included in the new loan amount. Even though there are fees associated with the transaction, this is the most common way for homeowners to use their home’s market value to finance home improvement projects or pay high-interest debt.
Here’s an example: Let’s say you have a home with a loan balance of $300,000, and you’ve built over $100,000 in equity. You decide to take out a cash-out refinance for $400,000. You use $300,000 to pay off your current mortgage, then use the $100,000 for home renovations, personal loan repayments, or anything else you may need.
Keep in mind, for a conventional cash out refinance, the maximum cash out that can be pulled out of the home is up to 80%. The transaction cannot close with the borrower holding less than a 20% equity stake in their property.
There are many different elements that factor into the rate of interest you will receive when applying for a cash-out refinance. Cash-out refinances already carry higher interest rates due to their level of risk. Since the homeowner is assuming a larger balance with a higher monthly payment (this is usually the case), the rate will be higher than a traditional refinance because the likelihood of repayment becomes more risky for the lender. Other factors like credit score, current market rates, location, past history, etc. will also contribute to the rate that is available for the transaction.
If a homeowner cannot qualify for a conventional loan since their credit score does not hit the 620 minimum, they can explore FHA loans.
A cash-out refinance is a way to access and leverage your home’s equity. The more equity you’ve built up, the more valuable a cash-out refinance can be.
What if you are pressed for time and need access to your cash-out quickly for a deadline? It pays to understand the process because this will help you determine how long your transaction will take.
In the majority of cases, it takes anywhere from 30 to 60 days to close a cash-out refinance. Even after you close, many lenders will wait three business days (not counting weekends or federal holidays) to make sure that you don’t back out of the loan or contract, this is called the homeowners right of rescission period.
You can potentially get your money sooner, but you’ll have to waive your right of rescission. This means you can get the money faster, but you don’t retain the right to back out of the loan if you change your mind.
Most equity products will take roughly the same amount of time to close. This includes but is not limited to refinances, HELOCs, equity loans, investment products, etc. The reason for the 30 to 60-day window is because of the amount of verification and third-party collaborations that have to take place before the transaction can be finalized. This may include an appraisal, inspection, title, etc.
There are many factors to consider when determining your closing timeline for a cash-out refinance. These include:
There are several ways you can accelerate a cash-out refinance and get your money quicker. For starters, it is important to start with the lender, and have someone lined up who you know will accept your loan application. If you have a good relationship with a bank or credit union, they may be willing to underwrite a cash-out refinance loan for you with few questions asked.
You can also have all the necessary documents ready to go and sent all at once with your application. You’ll need ID, proof of income, recent pay stubs, and others.
You'll also find that your cash-out refinance closes faster if you are in a good financial situation. If you have a high credit score, a low debt-to-income ratio (DTI), and few outstanding debts, a lender will be more willing to underwrite a new mortgage loan.
In other words, whether or not your refinance will resolve quickly depends on how many requirements you have in place before you decide to pursue this loan option. If you are prepared, you may have the opportunity for a fast turnaround.
Two months can be quite a long time to wait for money. For example, what if you need to pay a bill that’s due at the end of the month? Even in the best of circumstances, there’s no guarantee that the lump sum from a cash-out refinance will be in your bank account in time.
There are other ways to access the equity in your property. For example, you can look into co-ownership with Balance.
Balance invests in the equity of your property, becoming a co-owner and replacing your monthly mortgage payments with affordable monthly payments to us. As a co-investor, Balance pays for its share of the home's monthly expenses. Depending on when you contact us, you could see money from your equity in a matter of weeks.
You remain on the title of your property and get the cash you need to rebuild your financial health. Balance also gives homeowners the opportunity to refinance in the future and regain full ownership of the property. You retain access to your home’s equity to consolidate debt, repair the property, build credit, build your savings, and improve your personal finances.
As you can see, a cash-out refinance can easily take up to two months from start to finish, especially if you run into any of several potential hurdles. If you need access to equity quickly, you might be better off co-owning your home with Balance.
Balance makes it easy for you to stay in your home while reducing your monthly payments and helping your property remain valuable in the years to come. Get in touch with us today to see how we can help you.
Sources:
Cash-Out Refinancing Explained: How It Works and When to Do It | Investopedia
Cash-Out Refinancing: How It Works, When To Do It | Bankrate
Debt-to-Income (DTI) Ratio: What's Good and How To Calculate It | Investopedia
