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Many Americans have been stuck at home for more than a month due to the coronavirus pandemic. If you've been quarantining during COVID-19, you're spending much more time in your house than usual.
You might have begun noticing that parts of your home are in disrepair. Your kitchen or bathroom might need some help, or perhaps you feel that it's time to finish your basement. If you're thinking of renovating your house but don't have the money to do so, you can always do a cash-out refinance.
What is a Cash-Out Refi?
A cash-out refi is a loan that enables you to borrow money against the equity in your home. Equity is the total value of your home minus the amount you owe on your mortgage. There are three ways people can have or build equity in their home:
- By buying a house without a mortgage
- Making monthly mortgage payments reduces the loan amount over time
- When the value of a home increases beyond the purchase price
To figure out if you have equity, find out the value of your home and subtract the amount you still owe. The difference is the amount of equity you have in the house. You will have to speak to your lender to find out how much of that money you can actually borrow.
How Can You Get a Cash-Out Refi?
A cash-out refi is similar to an ordinary mortgage. To get one, you would have to visit or call a lender and supply the following information:
- Your personal information, such as your Social Security number and date of birth, so that your lender can run a credit report to determine if you're a creditworthy client
- Your income information, so the bank can figure out if you can afford to pay for the loan
- Information about the house to help ascertain the value of your home
Although the process is simpler than a purchase mortgage, your lender will still have a lot of questions for you, and you'll have to provide supporting information and documentation to get the loan.
Why do People Typically Borrow Money Against Their Home?
There are several common reasons why people tap into the equity of their home. Some of them include:
- To pay for education
- To pay for large expenses such as medical bills
- To repair or renovate their home
There are other rationales for borrowing money against your home. The rule of thumb is that the funds should either pay for an unavoidable expense or bring you value.
Will COVID-19 Affect Your Ability to Get a Loan?
Many people - even while they're under quarantine - are working remotely and still getting their regular paycheck from work. But a lot of people have been laid off due to the pandemic. The best way to determine if your current employment situation will affect your ability to get a loan is by discussing your scenario with a mortgage professional.
Should You Borrow Money to Renovate Your Home?
Upgrading your home is a great reason to tap into your equity. By doing so - in addition to improving your living quarters - you will add to the value of the house and will make it more marketable for when you want to sell it.
Your main consideration should be affordability. Your lender will let you know what your total payment will be after you borrow the additional money, and you can then determine if you can afford to make the monthly payments. Because current mortgage rates very low, this is an opportune time to make those needed repairs or upgrades.
Speak to a Professional
Whether you're considering a new deck with summer around the corner, replacing your dining room floor, or a total overhaul of your home, a cash-out refi is the way to go. If you need more information, feel free to call one of the expert loan officers at First Savings Mortgage, or contact us online.
Please note, by refinancing your existing loan, your total finance charges may be higher over the life of the loan.