Cash-Out Refinances
Disclaimer: I am not a loan officer, so while I mention different types of loan options and how they can be used in the buying process, I never quote numbers and always refer my clients to qualified individuals who I trust and are licensed to discuss specifics.
What is a Cash-Out Refinance?
A cash-out refi is a loan that is taken out on a property that is already owned. It allows you to leverage the equity in your home and gives you cash in exchange for a larger mortgage. It essentially increases the amount on your mortgage in exchange for cash. While you can use the money for anything you like, it was traditionally used for home repairs, medical bills, and to pay off other debts as the interest rates are usually lower than that of credit cards.
Why Would a Prospective Buyer Do A Cash-Out Refi?
Only current homeowners can do a cash-out refinance, but why would they want to?
TO BE A CASH BUYER
When it comes to bidding wars there are two main factors, money and terms. By definition, cash buyers have great terms.
They can close faster since they don’t have to go through the traditional loan process.
They don’t need to get an appraisal
There are no additional property maintenance requirements implemented by the lender
TO AVOID A CONTINGENCY
Typically if a seller needs the proceeds of their current home to purchase a new one, they need to first list the home they are living in. Once their current home is under contract they use that contract as their proof of funds showing how they are going to afford to purchase their new home. As agents, we also write in a contingency stating that if for some reason the buyer’s current home doesn’t sell that they are not obligated to purchase the new home.
Sellers view this as a risk. So many times if they have multiple offers that are similar in price, they will choose the one without the contingency. To avoid this disadvantage many homeowners did a cash-out refi post quarantine so that their offer could be more competitive.
TIMING FLEXIBILITY
In the post-COVID housing market, options such as use and occupancies (sell and rent back) made buying, selling, and moving timelines more flexible than ever before. However, you still needed all the movie pieces (a house to sell and a house to buy).
Currently, I have a number of clients who would like to move but only for the right house. This presents a problem if they need the money from their first house to buy the second house. While we can ask the new buyers to give us a use and occupancy, they are typically only for 30-90 days.
A cash-out refi allows these homeowners to go through the mortgage process and get the money they need to make an offer before finding the perfect home. Then when that house does hit the market not only can they finance it, they are in a really strong position as they are a cash buyer with no sale contingency.
Timing
You CANNOT list your home while going through the refinancing process. My preferred loan officers can typically do these in 45 days or less but I have had clients tell me their banks quoted them a 3-6 month timeline. You need to COMPLETE the process prior to looking at new homes or listing your current home for sale.
Want to Know More?
If you think this may be the right option for you, send an email to lisa@thehomebodyrealtor or give me a call at 201.694.5246, I will connect you with one of my trusted loan officers who can run your numbers and help you decide if this is your best option.