I want to borrow money from the value of my home for other goals.

As a homeowner, committing to paying your mortgage has increased the amount of your home that you truly own. The value you own is your home equity, and it’s a valuable asset to have.

If you’ve reached a point where you want to put your equity to work, our home.com by Homefinity professionals can guide you through your options for a refinance loan. Refinancing allows you to borrow money securely from the value of your home, which you can then use to pay for other life goals.

We’ve outlined the steps to help you understand cash-out refinance loans, whether you qualify for refinancing, and how to secure the most affordable loan for your situation.

Where to start

How can you use your home equity?

Home equity is described as the interest you have in your home, as anyone who has a financial claim to the property has an interest in it. As you pay down your mortgage, your lender’s interest in the property decreases, and yours increases.

You build equity as you make payments on your existing mortgage. It also rises as the value of your property increases over time.

The more equity you have in your home, the more options you have to use that equity to finance other life expenses. Some people use it as a down payment when purchasing their next home, while others use the money for purposes such as paying off credit card debt, renovating a home, paying college tuition, or buying a vacation home.

What is a cash-out refinance?

This is not considered a second mortgage but is instead a new loan. It replaces your existing home loan with a new larger mortgage, totaling more than you owe on your house. At closing, you receive the difference in cash that you can immediately use for other life goals. It is often paid off over 15- or 30-year terms.

With a cash-out refinance, you’ll want to consider the potential risks and downsides. Refinancing can decrease your equity and put you at risk of foreclosure if you can’t make payments on your loan, as your home will serve as collateral. With refinancing also comes closing costs, as well as new loan terms, which could include rules such as early prepayment penalties, if paid off too soon.

If you understand the new terms of your loan and see that the benefits outweigh the risks, refinancing can be a great way to make your equity work for you now.

Long-term saving options

Another more long-term solution to get cash from your home is to refinance with the goal of lowering your interest rates and monthly payments. This can save you money each month, which might help you afford other life expenses. Learn more here.

Do you qualify for a refinance loan?

Your credit score

Credit score requirements can fluctuate, but we can typically find an appropriate loan program or assist you in improving your score

Using a free site like CreditKarma, CreditSesame, or CreditWise can be a quick way to get an idea of how you’re doing with your credit. But, just keep in mind that when you go to qualify for your mortgage we’ll need to request your actual credit report and score, which will give us “official” credit scores and the full details of your credit history.

Your income vs debt

When looking at your credit score and monthly budget, pay close attention to the amount of debt you carry compared to the amount of consistent income you earn. This determines your debt-to-income (DTI) ratio, which is your monthly expenses divided by your gross monthly income. If you have enough consistent income to pay the added cost of a refinance loan, you are more likely to get approved. To learn more about your DTI ratio and how it will effect your loan talk to one of our loan professionals.

Your equity

The amount of equity you have in your home, determines how much you can borrow against its value. Your loan-to-value (LTV) ratio is one factor in determining your eligibility for refinancing. The LTV ratio is the percentage of what you owe on your mortgage, compared to your home’s available value. It is typically expected to be 80% or higher, meaning you have 20% equity in your home. However, you can refinance with as little as 5% equity or an LTV of 95%.

How do you calculate the value of your home?

The most accurate way to determine your home’s value is with an appraisal, which is generally required for approval of a refinance loan.

To get an idea of your home’s value before an appraisal, look at your property assessment on your annual tax bill. Your property taxes are based on the value of your home that is determined by your county. Also research sales prices of comparable homes in your neighborhood that have sold within the past six months. Adjust your estimate based on your home’s condition, size, and other unique features.

To determine how much equity you have and your loan-to-value ratio, ask your lender for your current mortgage’s balance. Subtract that number from your estimated value to see how much equity you have. Then divide the difference by your home’s value to determine your LTV ratio.

What type of refinance loan would work best for you?

Depending on your current mortgage and finances, you have options regarding whether you choose an FHA refinance loan or a Conventional refinance loan. If you are active-duty or a veteran, view the unique VA refinance options here.

Each loan type has differing requirements and terms, as well as specific refinance programs.

Your eligibility for an FHA refinance compared to a Conventional refinance depends more on your finances and terms of your current mortgage, rather than the type of mortgage you currently have. This gives you options regardless of whether your existing mortgage is a Conventional, FHA, VA, or another type of loan.

Conventional refinance

Features

• Most common loan for homeowners
• Borrow up to 80% of your home’s value
• No out-of-pocket closing cost option
• Choose fixed or adjustable-rate

Requirements

• Credit score requirements can fluctuate, but we can typically find an appropriate loan program or assist you in improving your score
• Qualifying debt-to-income ratios can vary by the loan program, but typically the lower this ratio the better the terms of your mortgage.
• Maximum loan-to-value ratio of 80%, meaning you have at least 20% equity in your home
• Documented income showing your ability to repay the loan
• Approximate figure of how much money you want to borrow
• Loans with less than 20% equity require monthly private mortgage insurance payments

FHA refinance

Features

• You may be eligible even if your current loan is not an FHA loan
• Borrow up to 80% of your home’s value
• No out-of-pocket closing cost option
• Choose fixed or adjustable-rate

Requirements

• Credit score requirements can fluctuate, but we can typically find an appropriate loan program or assist you in improving your score
• Qualifying debt-to-income ratios can vary by the loan program, but typically the lower this ratio the better the terms of your mortgage.
• Maximum loan-to-value ratio of 85%, meaning you have at least 15% equity in your home
• Home being refinanced is your primary residence 
• A required home appraisal
• Upfront mortgage insurance premium and monthly mortgage insurance payments, likely for the life of the loan

How does home.com by Homefinity work with you?

Now that you have some background on how refinancing can help you borrow money from the value of your home, let’s find out what will work specifically for your situation. Homefinity’s professionals work with you from start to finish to secure the loan you need.

1. With a phone call to our loan professionals or a convenient online form, you can start the application process, where we’ll ask questions about your credit and finances to learn about your needs.
2. Your information helps us make the best possible recommendations on what refinance options will work best for you. We’ll discuss the options with you and any questions you have about your situation.
3. Once you feel comfortable with choosing your loan, we’ll help you through the approval process. With approval, we can lock in your interest rate so it won’t fluctuate throughout the refinancing process.
4. As you head toward closing your loan, we’ll guide you through every step, updating you at each point in the process with clear details and next steps. Your dedicated loan officer can answer your questions at any time.
5. When you’re ready, we can close your loan on the day, time, and place that works best for you.

Get Started. Make it affordable.

Connect with a dedicated loan officer to discuss your options for refinancing your current mortgage. Apply online or over the phone to start the approval process so that you can feel comfortable with your loan in the home you love.