There are a couple of options you have if you plan to use a cash-out refinance. You can purchase an investment property or a second home. It depends what your goals are. It also depends what you have time for! Having an investment property can take up a lot of your time.
Not everyone will qualify for a cash-out refinance. And not everyone will have enough equity in their current home. So there are a couple of things you need to be aware of and look into! If you qualify for a cash-out refinance, you can use up to 80% of the equity in the home you currently own and use those funds for a new home. The great part is that you would be able to take advance of lower interests rates too. This is one of the best ways to put your equity into good use!
Just like all loans, each lender has different rules and options. But there are a few rules that are pretty standard. For example, you will have to have at least 20% equity in your primary home in order to qualify. It is also standard that your credit score will need to be a minimum of 620. (In other loan options, your minimum credit score can be lower.) There is also a standard for your debt-to-income ratio – it must be 50% or less. Again, with other loan options, this is not the case. Like other loan options, you will need to provide proof of your income and employment.
If you are in a rush to obtain a cash-out refinance loan, you usually have to have your primary loan for at least six months. This will change per lender and loan type, but for any of them, it will not be less than that six month period.
Do you have any goals when it comes to owning a second home as a vacation property or investment property? We would love to help you reach those goals!