Can some one explain what "refinancing" is?

[Corey Bogaski]

Hey everyone, 

I am new to bigger pockets. I am looking at getting my first property (house hack) within the next couple months. For the sake of the example i am going to just use fake numbers to see if i understand how the process works.

So, if i buy a house for 100k, put 50k into it and it appraises for 200k; i can take 75% of the 200k (150k) and use it on another deal without paying it back??

I know the mortgage will change and everything for the property, I mainly just wanted to get the big picture of what a refinance is. Thank you to anyone who responds and i hope this can help other people as well!

[Issac San Miguel]

Quote from @Corey Bogaski:

Hey everyone, 

I am new to bigger pockets. I am looking at getting my first property (house hack) within the next couple months. For the sake of the example i am going to just use fake numbers to see if i understand how the process works.

So, if i buy a house for 100k, put 50k into it and it appraises for 200k; i can take 75% of the 200k (150k) and use it on another deal without paying it back??

I know the mortgage will change and everything for the property, I mainly just wanted to get the big picture of what a refinance is. Thank you to anyone who responds and i hope this can help other people as well!

 think of it in terms if who has the “mortgage” on the property. if you buy a house cash, there is no mortgage. 

if you then want to pull that cash out, you do so against the value of the home. 

that cash isn’t free. a bank or lender will give you that money using the house as collateral. 

you then begin making mortgage payments. 

second scenario,

lets say you buy a 100k house and put down 20%. abc bank gives you the other 80k to buy the house. your mortgage is 80k. you then have mortgage payments from the time of purchase. 

assuming all is well, time passes, the house appreciates to 200k, and you qualify as a borrower. 

you then think to yourself okay, i want refinance and pull cash out of the house. 

most banks and lenders will give you 75% of the value, or in the case off 200k, you can access 150k of that value. 

but the doesnt mean you get 150k, because you still have the original mortgage to pay off. 

at closing, they will pay off the original 80k mortgage, and you will keep the difference in cash. for simplicity’s sake, the above would net 70k in “cash out”. 

you now have a mortgage on the property that is 150k, and the original mortgage of 80k will be considered “paid in full”