A cash-out refinance is a strategic way to access cash. This strategy includes replacing your existing mortgage with a bigger loan. However, if your mortgage rate has increased after you bought the house, then it is not recommended. The underlying reason is that the new mortgage must be more than your current mortgage, as the balance will go to you at the time of closing.
Read on to learn more about how cash-out refinancing works.
Essential Steps for Getting A Cash-Out Refinance
Here are the essential steps for getting a cash-out refinance.
Assess the Home Equity
To get a cash-out refinance, you must first establish your home equity. In case you don’t know what home equity is, you should know that this term refers to the potential market value of your property minus the amount that you still owe on your mortgage. Suppose the value of your house is $300 thousand, and you still have $100 thousand remaining on your mortgage, in which case you have $200 thousand in home equity.
Analyze the Maximum Loan that You Can Take Out
Generally, you can take eighty percent of the home’s value. Now, if the value of your house is $300 thousand, then eighty percent is $240 thousand. However, this sum isn’t the same as eighty percent of the buying price. Why, you might ask? The underlying reason is that the value of your home might be different today than when you bought it.
Calculate Your Existing Mortgage Balance
The next step is to calculate your present mortgage balance. Keeping intact with the aforementioned example, after paying off the remaining $100 thousand, you will have $140 thousand left that you can use for your needs or investments.
Research Potential Lenders
Now that you know how a cash-out refinance works, it is time to assess the rates that various lenders have to offer. To get the best deal, you must weigh potential alternatives. 
After selecting a feasible deal, you must analyze your latest monthly mortgage payment to determine if you can afford it. If everything looks right, you can proceed to submit an application.
Meet the Lender’s Requirements
In order to leverage a cash-out refinance, you must meet the lender’s requirements, as the requirements will differ from one lender to another. Make sure to settle for the best interest rate. Typically, most lenders require you to have a DTI of over 45%, where DTI stands for the debt-to-income ratio.
Understandably, your credit score must also qualify for a cash-out refinance with a score of at least 620. If your credit score is actually higher, you can secure a better interest rate. Also, you must require at least twenty percent equity, which means that at least 20% of your current home value must have been paid off.
Choose AmeriSave for A Cash-Out Refinance
With AmeriSave, you can avail of a cash-out refinance and subsequently access a fair amount of money with a relatively lower interest rate. The lower interest rate that homeowners get with cash-out refinances is one of the biggest benefits. Also, it is a refinance, which means that you will be dealing with one loan payment only.
