When Is A Good Time For You To Get A Refinancing Loan Or A Cash-Out Loan?
You are a real estate investor and have built a real estate portfolio, but one or a couple of your properties need some updates. Their condition limits you from maximizing their earning potential because they require improvements. The neighborhood has also improved a lot since you bought them. There is only one thing you can do. You have to upgrade the amenities and overall look of your properties to help raise their values and get a better deal from tenants. You will need funds, and your funds may or may not be enough for this project. Hard money loan Cash-Out Refinancing can give you the funds you need.
What Is Cash-Out Refinancing
Cash-out refinancing converts the equity in your non-owner-occupied property into cash. There are no restrictions to the purpose of the loan, meaning that you can do whatever you like with the money, so long as it is within the bounds of the law. The scheme replaces your current mortgage with a new one; you will then get the difference between the allowed loanable amount minus the existing mortgage’s balance. For what purpose would I benefit more if I do a Cash-Out refinance? Take note, however, that you should always be prudent in executing a cash-out loan because you do not want the drawbacks to overshadow your intentions.
What Are The Benefits Of Cash-Out Refinancing?
Here are some possible uses for a cash-out refinance loan. You are also not limited to only one purpose. In fact, you can even position a cash-out loan to upgrade your property and consolidate some of your Personal Loans.
- House or Rentals. Upgrade on your property to update its facilities and features that can help you secure higher rental income from the property. Most improvements focus on the kitchen, the toilets, and the baths. Paint and wallpaper upgrades also improve the value of your property.
- Debt Consolidation. Pay off all your high-interest loans, thus leaving you with only one or a few other loans to maintain.
- Additional Funds. You can use the money from a cash-out loan as additional funds for purchasing another property.
- Purchase Property. Because a cash-out loan does not limit you to a single loan purpose, you can use the funds to buy a decrepit property for a fix-and-flip or maybe even as a rental that you add to your portfolio. Your total monthly installments can be lower than before.
Some Factors To Consider Before Availing Of Cash-Out Refinancing
These are some areas of concern when you avail of a cash-out refinancing. However, by considering these factors, you can maximize the advantages of the loan program.
- Your equity portion on your property must be substantial. Some lenders require an equity of more than 20% of the appraised value, while others prefer 25%. But what can you get with such a small equity? And when you factor in all the fees plus your current mortgage balance, what you will get may even be much less than what you need. A Cash-Out Refinancing works best when you have substantial equity on your property. If you have second thoughts about cash-out refinancing, you can always consult with a trusted lender, such as GL&L Holdings, to make an informed decision. GL&L Holdings can let you borrow up to 70% LTV based on appraised value.
- The current interest rates are lower compared to the rates you have on your mortgage. Interest rates on Cash-Out Loans from Hard Money Lenders go as high as 13% annually. You can, however, ask for preferential rates given to preferred clients.
- You need immediate emergency funding as fast as possible. GL&L Holdings can close the transaction in 7 days with all documents in order.
- Make sure you have enough monthly income to cover all your loan amortizations. Per most lenders, your total installments should not exceed more than 40% of your income.
Downsides Of A Cash-Out Refinancing
To come up with a proper decision, you should weigh the benefits of a loan program against its downsides. You should also consider your current situation, financially or otherwise, in evaluating your deal. Most of the downsides of a cash-out loan are not inherent to the program. Most are dependent on external factors but are easy to mitigate. Here are some of them:
- You will have an extended term. Cash-out refinancing will take over your current mortgage, and you will have a longer loan term. The extended loan period effectively allows you to have lower or the same amortization as before. However, you can opt for a shorter loan if you can afford higher monthly installments.
- Your amortization can be higher. You can opt to shorten your term, but it will lead to higher monthly payments. You should only entertain this if your monthly income can cover the higher amortizations.
- Rates can be higher. Depending on the overall economic conditions, if the Feds declare an increase in rates, expect your loan rates to follow, particularly if you signed for variable rates.
- You will end up paying new processing and closing fees. Why? Because you will be signing a new mortgage that will succeed your current one, effectively replacing it.
Cash-Out Loan Sample Computation
Let us say these are the figures for one of your rental properties. You have a rental property with a current mortgage of 100,000.00 after paying for it for a substantial number of years now. You bought the property for 300,000.00 years ago. Now that you are applying for a cash-out refinancing, the appraised is 350,000.00. Let us do the math.
| Appraisal Value of Property: | $350,000.00 |
| Amount of Loan (70% LTV): | $350,000.00 X 70% = $245,000.00 |
| Principal Balance of Current Mortgage: | $100,000.00 |
| Gross Cash-Out: | $145,000.00 |
| Less 5% Origination Points: | $245,000 X 5% = $12,250.00 |
| Net Cash-Out: | $145,000 – $12,250 = $143,775.00 |
Our Cash-Out Loan Offer
Cash-Out Loans can provide you with immediate funds for many purposes. Some may be renovations, real estate deals you need to close or even debt consolidation. If you need speedy funding and want to know more about Cash-Out Refinancing, give us a ring, and let us help you with the details. Call us now at (832) 7709415 or email us at info@gllholdings.com. We are more than glad to discuss your deal or your project with you.
Frequently Asked Questions
For what purposes can I use Cash Out Refinancing?
Cash-out refinancing does not limit you to preset purposes. You can use the funds you’ll get any way you want, so long as you do not break any laws.
What are the requirements?
Requirements are the same as when you applied for real estate property financing.
What properties are eligible for cash-out refinancing?
Non-owner-occupied properties are preferred. As long as you have substantial equity on your property, we can accommodate a cash-out refinancing deal for you. Commercial, Multi-Family, Apartments, Townhouses, basically all your rental properties are eligible.
Do I need to pay fees?
A cash-out refinancing is a new mortgage on your property that supersedes your current mortgage. So yes, there will be fees you need to pay. The origination and closing fees are between 3% to 5% of the loan amount. However, these do not include fees paid to companies whose services we need to employ.
