You want to convert your home equity into cash but aren’t sure what the process entails or how long it’ll take. In this guide, you’ll learn how the cash-out refinance process works, what documents you need to apply and how long it takes to finalize the transaction.
Home Loans and Mortgage Refinancing
Cash-Out Refinance Process Explained
A cash-out refinance involves swapping your mortgage for a new one and pulling out a portion of your equity. Most lenders will let you borrow up to 80 percent of the equity you’ve built up in your home. But instead of getting a second loan, the cash you pull out will be rolled into a new mortgage.
Below is a breakdown of the cash-out refinance process:
- Step 1: Get pre-approved and view potential loan options.
- Step 2: If you find a good fit, submit a formal loan application with the lender.
- Step 3: Send over the required documents to the lender.
- Step 4: Get a home appraisal.
- Step 5: Provide any additional documents the underwriter needs to process your loan application.
- Step 6: Close on your cash-out refinance loan.
To illustrate, assume your home is valued at $435,000, and you owe $285,000 on your mortgage. If the lender approves you to pull out 80 percent of your equity, or $63,000 ($435,000 * .80 – $285,000). At closing, your current loan will be paid off, replaced with a new mortgage for $348,000 ($285,000 + $63,000). Furthermore, you’ll receive the $63,000 within a few days to use however you see fit.
Typical Documents Needed for a Cash-Out Refinance
The application process for a cash-out refinance is similar to what you experienced when you applied for a home loan. Some lenders request more documents than others, but you should be prepared to submit the following to the loan officer:
- Two most recent pay stubs (or four if you’re paid weekly)
- Two most recent bank statements
- Two most recent tax returns
- W-2s for the two most recent tax periods
- Your employer’s name, phone number and email address
- Proof of homeowner’s insurance
You could also be asked to write a letter of explanation if you have credit issues or recent gaps in your work history.
If the underwriter needs more information to process your loan application, your loan officer will notify you. Be sure to provide the requested documentation promptly to avoid delays with your application.
Home Loans and Mortgage Refinancing
Appraisal For a Cash-Out Refinance
Before the lender approves you for a cash-out refinance, they’ll order an appraisal to confirm your home’s value. Depending on market conditions, this could take a few days to be completed or well over a month.
Some borrowers are eligible for a cash-out appraisal waiver, which automates the process and reduces the time spent waiting for a traditional appraisal to be completed. The lender relies on data from the underwriting system to assess your home’s value, but you’ll typically need good or excellent credit to qualify.
Be mindful that an appraisal that comes back too low could lead to processing delays. You could also encounter issues if your neighborhood lacks comparable sales or your neighborhood is declining, all of which means you could be eligible for a lower loan amount than you originally anticipated.
How Long Does a Cash-Out Refinance Take?
In most cases, it takes 45 to 60 days to close on a cash-out refinance loan. But you won’t get the funds in hand right away. Most lenders wait three business days following closing in case you want to rescind the contract. If you’d like the funds sooner, you may be able to waive your right of rescission by petitioning the lender for a rapid disbursement due to a financial emergency.
Cash-out refinances are slightly different from investment properties or second homes. Depending on the lender, you could get a check the same day you close the loan.
What Can You Use Cash from a Refinance For?
There are no restrictions on how the funds from a cash-out refinance can be used. Some homeowners consolidate high-interest debt, boost their nest egg, establish an emergency fund, invest or start a business. Ultimately, you’re free to use the funds however you see fit.
If a cash-out refinance seems like a smart financial move, consider LoanDepot to secure a loan that works best for you. It’s a BBB-accredited lender that’s refinanced over $179 billion in mortgages for the past 12 years. You’ll enjoy a streamlined application process, and exceptional customer service as a dedicated loan officer will be there with you every step of the way.
Take the first step towards converting your home equity into cash by calling LoanDepot, submitting an online inquiry or visiting a branch today.
Other Frequently Asked Questions
Here are some frequently asked questions regarding cash-out refinances and the timeline you can expect when you apply.
Most lenders let you pull out up to 80 percent of your home equity or the difference between your home’s value and what you currently owe on the mortgage. So, if your home is worth $525,000 and you owe $365,000, you may qualify for a cash-out refinance of up to $55,000. You’ll get a new loan for $420,000 ($365,000 + $55,000) and a check for $55,000 a few days following closing.
In short, yes. A thriving real estate market means it could take some time to have an appraisal done, which means your closing may be delayed. However, selecting well-qualified borrowers may qualify for a cash-out appraisal waiver.
Yes, you can get an FHA, or VA-backed cash-out refinance.
Yes. You’ll pay closing costs between 2 percent and 5 percent of the new loan amount.
Not necessarily. You can apply for a cash-out refinance right away if you have a conventional loan. However, government-backed loans have a waiting or “seasoning” period:
FHA streamline refinance: 210 days, although you may be eligible sooner if you plan to refinance into a conventional loan and meet specific eligibility requirements
VA cash-out refinance: 12 months of consecutive, on-time payments
If you have a USDA, you won’t be able to do a cash-out refinance with another USDA loan. However, the lender you plan to refinance with will likely require 12 months of consecutive, on-time payments.
