Cash-Out Refinance to Your Rental Real Estate Income

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Square I Property Management interviewed residential mortgage loan officer CHARLIE MILLER from MOVEMENT MORTGAGE to teach you about cash-out refinances! Why? Because we want to bring you all the relevant info you need to learn how to create truly passive income! Here’s what he had to say!

Charlie, what exactly is a cash-out refinance?

It is an opportunity and option to access available equity in your home by refinancing your current mortgage.  This can serve two purposes; allowing you to reduce your current interest rate/monthly payment/term and accessing cash from the equity in your home.

So I can use the value of my home and turn that into cash? How much cash can I take out of my home at once?

Yes, and well, for most cash-out refinances you will be restricted to 80% of the value of your home.  There are certain programs that may allow for up to 85%.  Depending on the property and occupancy other restrictions may apply.  A Home Equity Line of Credit or Loan may be another option to access additional cash via equity.

This is a game changer! I don’t have a couple $10k sitting around to invest. How do I get the money? Do I just get a check at settlement?

At the closing of the transaction you will have the option of a check or wire from the title company.  Depending on the occupancy status of the home (primary, second home, investment property) will determine how quickly you will receive the money after you sign the final closing package documents.

Wait, you mentioned interest rates before. Is this rate going to be high because I’m taking money out of my home?

Oh one of the great things with Movement Mortgage is that our refinance and purchase interest rates are the same.  When taking cash-out you may experience an incremental increase in rate.

Ok, this is great! So we covered rates, and what exactly this concept is, but what about the process? Is the process any different than just buying a home?

Actually the refinance of your home loan is very similar to a purchase transaction.  We still review credit, assets, and your ability to repay your loan based on your income and current outstanding debts.

Yea that makes sense. I don’t want to be over-extended anyway.  What about documentation standards? Are those different than a normal home purchase?

Nope! Not much different at all! Documentation will be very similar to a purchase as well.  We will need to review credit and your income/asset documentation.  A full appraisal will be required as well.

How often can I do this?

As often as you would like, pending the available equity in the property and the ability to qualify for the new loan.

What are the closing costs for a cash-out refinance?

Closing costs are similar to that of purchasing a home.  You will experience less cost when it comes to title insurance (reissue rates may apply) and transfer taxes, which results in significantly less out of pocket.  On all cash you take out of your property most States/County’s require a recordation tax which can result in slightly higher closing costs than a standard refinance of your current outstanding mortgage balance.  Each County and State will have their own tax involved with this.

Oh! Interesting! Glad we covered that. How soon after the cash-out refinance can I buy the rental property?

Typically as soon as you would like.  For most loan programs you can use the equity you have in your current home for downpayment/closing costs on a new purchase.  You will have to qualify for the new loan.

Man, this is impressive! I didn’t realize this was possible! So I want to get started, do you have any advice for preparing for this kind of transaction?

Make sure to have your ducks in a row.  Credit will impact your ability to qualify and interest rates that we can provide.  You also will want to make sure the property is in good condition to ensure no issues with the appraisal.  Finally, try to compile the necessary documentation needed by lenders to proceed with the home loan application (paystubs, W-2’s, personal 1040 (Federal) tax returns, Business returns and Profit & Loss statements if applicable, and your most recent two months worth of bank statements).

Well, there you have it everyone! Charlie Miller, residential loan officer with Movement Mortgage. If your interests are peaked reach out to him ASAP!! His info is hyperlinked everywhere you see his name!! So call this guy and inquire today!!

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