Summary: Have you just recently purchased a home in WA and are already thinking about a cash-out refinance? Is this even possible? In this article, we’ll discuss a cash-out refinance on homes that have recently been purchased.
You may have heard of a cash-out refinancing program, but this is typically done when you’ve held onto a home for a while. But can you access a cash-out refinancing program soon after buying a home in WA?
When you buy a home in WA, you will be putting a down payment towards the home purchase. Depending on the type of mortgage you take out and how much money you can gather for this purpose, that amount could be anywhere between 3% to over 20% of the purchase price of the home.
Considering this fact, you’ll already have instant equity in the home right after you buy it and take possession.
And if you were able to snag the home at a price that’s below market value, you can take advantage of even more equity in terms of property value.
For some homeowners, a cash-out refinance means taking money from your home equity in order to pay off credit card bills, purchase a car or pay for college for one of your children. However, it is important to understand that a cash-out refinance isn’t as simple as it sounds. You’ll want to to find out all there is to know about a cash-out refinance and all the ins and outs of this type of program before you choose this route.
Cash Out Refinance, Equity Loan Or Second Mortgage
There are three basic ways to access the equity in your home, including the following:
Cash Out Refinance
With this option, you refinance your current mortgage and you request cash-out for the equity. For example, if your home is worth $200,000 and you have a current mortgage of $100,000, you may be able to access an additional $60,000 to $70,000 in cash depending on your lender’s requirements.
Home Equity Line of Credit (HELOC)
A HELOC is typically a line of credit secured by a lien on your property. These loans are typically what are known as “revolving” where you can access the funds over and over again as you make payments. Home equity line of credit rates are variable and tied to the Prime Rate.
Also referred to as home equity loans, second mortgages are generally fixed-rate loans that act much like a first mortgage but with a higher interest rate. They often can go to a higher loan to value than a first mortgage much like a Home Equity Line of Credit; however, they usually come with more fixed costs.
In most cases, lenders require borrowers to own the home for at least six months before they are allowed the option of a cash-out refinance. The exception is if you pay for the home with cash. In this situation, many lenders will allow for delayed financing and allow a cash-out transaction prior to the standard six-month waiting period.
What is a Cash-Out Refinance?
With a cash-out refinance, you are able to tap into the equity of your home to access cash for large expenditures you may need covered. In order to access this cash, a new mortgage is made for more than the previous mortgage balance. Whatever the difference is will be paid out to you in cash. Generally speaking, a higher interest rate or more points will be required on a cash-out refinance mortgage in comparison to a rate-and-term refinance whereby the mortgage amount remains the same.
Why Six Months?
Six months may seem subjective, but there are some important things to keep in mind. When you applied for your original mortgage, your lender based their decision on the purchase price the market supported at that time.
The lender wants to ensure that the price was not temporarily driven up by a fleeting surge of purchases in a specific area.
While you may already have a substantial amount of equity in your home, lenders are taking an additional risk if you are allowed to “tap into” that equity given the potential for mini price fluctuations and bubbles.
The lender also wants to ensure you still have skin in the game. If you purchase a home with the immediate intention of taking cash out to recoup your down payment, you are, in essence purchasing a home with zero down. The rate of default increases as the borrower puts less of their own money into the home.
At the end of the day, lenders typically want a homeowner to own their property for a little while first before they allow a cash-out refinance to go through. This is all to help protect the lender.
Need a Mortgage Loan in WA State?
Are you looking to refinance your home or take out a new mortgage? Sammamish Mortgage can help. We are a local mortgage company serving the broader Pacific Northwest region, including Washington state, Idaho, Colorado, and Oregon. We are proud to offer a wide variety of mortgage programs and products with flexible qualification criteria. Please contact us if you have any questions or are ready to apply for a home loan.