How does a Cash out Refinance Work?

Question

Does the amount you can receive from a cash out refinance depend on the max loan you can get based on your annual income?

Anastasia G. · Answer

Hello @Justin Miller

Refinance is the same process as you getting a mortgage to purchase a home, new loan proceeds are used to pay off loan in place; Financing terms/structure will depend on your unique situation. If you were to go traditional route - then your credit/income/assets/property type/occupancy/goals will determine the amount & terms of the loan; If you were to go non-traditional route then income (DTI) might be omitted in the evaluation, but the rest is still in place.

David M. · Answer

@Justin Miller

Pretty much...  Lets say your current loan principal is 50, and the value of the property is 200.  If you can qualify for a 160 loan, then you get 110 "cashed out" of the property.  The mechanics is at closing a new loan of 160 is recorded and out of the 160, 50 is used to payoff the existing loan.  That is done simultaneously during the closing process.

For the cash out portion, you need to qualify for the loan and your collateral, i.e. your property, has to appraise sufficiently high enough as well.  Granted, that's part of qualifying for the loan, but I just wanted it to be clear.

Does that help?

Jason Wray · Answer

Justin,

Here are the basics - On a Cash out refinance you can take out up to 85% LTV on a primary, Up to 80% LTV on a secondary home, and up to 75%LTV on an investment rental.  The loan does not have to be a conventional loan where they use DTI - debt to income ratios.  There are a few other loan programs to consider such as DSCR, Bank Statement, Asset lending, Reverse Mortgage, and Bridge loan.

There are a few more but these are the typical go to loans for a home owner/investor.  So you can take out cash on a rental property without using your persoanl income or tax returns where job gaps and employment type is not a factor.  You have to make sure the bank/lender you are going to use carries all of these options as a fail safe to ensure your best chances for Max cash out and the approval.

The bank/lender should be able to tell you abouy their Non/QM and Portfolio loan options as well as the standard traditional loans!