Underused Cash Out Refinance Options

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A Cash Out Refinance is a great way to tap into your home equity to get cash out and put it towards debt or home improvement. Below are a couple of types of cash out refinancing that are useful, yet underused.

Delayed Financing

In this competitive real estate market, cash buyers will almost always prevail in a bidding war, especially on an investment/rental property. Delayed financing gives a buyer the power to pay for a home upfront, with cash, and then almost immediately thereafter obtain a cash-out refinance, which returns a big chunk of the money back to them. 

Pros:

  • Make stronger offers and win deals with competitive offers
  • Lower fees at purchase
  • Get the vast majority of your cash back within weeks of closing through a cash-out refinance

Delayed financing will follow typical, Fannie/Freddie guidelines – you’ll be maxed out at 80% LTV for primary homes and 75% for investments properties. The LTV is calculated based on the original purchase price plus closing costs, points and prepaid items.  

Student Loan Cash Out Refinances

This type of refinancing allows the payoff of student loan debt through the refinance transaction with a waiver of the cash-out refinance rate adjustments.

At least one student loan must be paid off with proceeds from the subject transaction with the following criteria:

  • The student loan must be paid in full – partial payments are not permitted
  • At least one borrower must be obligated on the student loan being paid off             
  • Proceeds must be paid directly to the student loan servicer at closing

The transaction may also be used to pay off one of the following:

  • A single-closing construction-to-permanent loan to pay for construction costs to build the home
  • An existing first mortgage loan 

The transaction may be used to finance the payment of closing costs, points, and prepaid items. Except for real estate taxes that are more than 60 days delinquent, the borrower can include real estate taxes in the new loan amount if an escrow account is established, subject to applicable law or regulation.

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