Cash-Out Refinance Loan Limits for All Programs
Cash-Out Refinance Loan Mortgage Guidelines By Property Types Guidelines
The article covers cash-out refinance guidelines for different property types.
Homeowners with enough equity are using cash-out refinancing to improve the terms of their current mortgage and get extra cash while they’re at it. They do this by replacing their old mortgage with a new, larger one and taking the difference in cash.
Many homeowners who purchased homes about ten years ago bought in at the bottom of the real estate market. Double-digit home appreciation rates are common in much of the country. Some California homeowners have seen 20% to 30% appreciation. These homeowners are good candidates for cash-out refinancing.
Cash Proceeds From Cash-Out Refinancing
Proceeds from cash-out refinance mortgages are tax-free because they are not income. Homeowners can take the cash proceeds for any reason. Here are some popular ones:
- Pay off higher-interest debt
- Fund home improvement projects
- Purchase additional property
- Start a business
- Pay for college
Cash-out refinancing is not the only way to pay for these things, but it could be the cheapest source of financing.
Cash-out Refinance vs Rate and Term Refinance
There are three main types of refinancing, and they all have different guidelines:
- A rate and term refinance just replaces your old mortgage with a better mortgage. The amount of the new loans equals the payoff of the old loan.
- A limited cash-out refinance is similar, but you’re allowed to add your refinancing costs to your loan balance, so you can refinance with no out-of-pocket costs.
- And a cash-out refinance replaces your old loan, adds your refinancing costs to your loan amount, and adds the amount of cash-out you want to your new loan as well.
Rate and term and limited cash-out refinances have the least restrictive guidelines because they are safer than cash-out refinances. Cash-out refinances also have higher fees than rate and term or limited cash-out refis.
For instance, Fannie Mae lenders allow rate and term refinances up to 97% of the property value, while cash-out refinances can only go up to 80%. And the fee for a cash-out refinance, if your FICO score is 700, is 1.125% more. And while purchases and rate-and-term refinancing is allowed with FICO scores down to 620, you’ll need a 680 FICO if you want a cash-out refinance.
Cash-Out Limits by Loan Program
Different loan programs set varying limits on the amount of cash you can take out when you refinance:
- FHA cash-out refinancing is limited to 80% of the property value (It was reduced from 85% in 2019)
- Conforming (Fannie Mae and Freddie Mac) programs allow cash-out to 80% loan-to-value (LTV).
- VA cash-out refinancing is limited to 100% LTV.
Other programs might allow you to pull more cash out when you refinance. These are “non-prime,” “non-QM” or “portfolio” loans offered by individual lenders and kept on their own books. It’s harder to find loans with creative guidelines like these but they are out there.
How Property Type Affects Cash-Out Refinancing
Different property types are subject to different rules and limits for cash-out refinancing. For instance, most conventional guidelines limit cash out for 2-4 unit properties to 75% LTV. On the other hand, the limit for single-family homes is 80%.
The cash-out refinance limit for manufactured homes is 65% LTV under most conventional loan guidelines. And under conventional guidelines, co-ops don’t qualify for cash-out refinancing at all.
How Property Use Affects Cash Out
It’s not just the type of property that impacts your cash-out refinance guidelines, pricing, and LTV limit. The use — primary residence, second home, or investment property — also impacts how much cash you can take and what it takes to get approved.
Government-backed loans only allow primary residences, so this section only pertains to conventional (non-government) home loans. For primary residences, you can do cash-out refinancing to 80% LTV. For second homes, that drops to 75%. With investment property like rental units, your limit is 75% for single-family homes and 70% for 2-4 unit dwellings.
Homeowners who need a cash-out refinance can prequalify by clicking APPLY NOW. A licensed loan officer from Gustan Cho Associates will go through your results with you and work together with you to choose the right program for your situation. You can also call us at GCA Mortgage Group anytime, 7 days a week, at 262-716-8151. Text us for a faster response. Or email us at [email protected]