Cash Out Refinance After a New Purchase?

February 6, 2014
Last updated:
October 21, 2021
In This Article

Generally when you are purchasing a home, you are buying below the appraised value and you are making a down payment. The good news is this means you have “instant equity” in your home.

For some homeowners, this means may be considering taking cash-out 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, this may not be as simple as it sounds.

Cash-Out Refinance, Equity Loan, Or Second Mortgage

There are three basic ways to access equity in your home which are common these include:

  • Cash-Out Refinance – 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 Loan – A home equity loan 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 loans rates are variable and tied to the Prime Rate.
  • Second Mortgage – 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 than a HELOC.

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.

Today’s Mortgage Rates

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 the home with zero down. The rate of default increases as the borrower puts less of their own money into the home.

Related: How Often Can You Refinance Your Home in WA State?

Get an Instant Mortgage Rate Quote Today

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 since 1992. Please contact us if you have any questions or are ready to apply for a home loan.

Other Blogs You May Like
How To Know When You’ll Benefit From A Refinance
January 4, 2024
4 min read
How To Know When You’ll Benefit From A Refinance
Refinancing can help you save thousands of dollars over the life of your loan. But there are...
Best Ways to Use Cash Out Refinancing for a Home in WA State
January 3, 2024
7 min read
Best Ways to Use Cash Out Refinancing for a Home in WA State
One of the most valuable assets in the typical financial portfolio, home equity, is the least...
Show 6 more posts
from this category

Connect with a Mortgage Advisor Today!

Whether you’re buying a home or ready to refinance, our professionals can help.

Compare Mortgage Rates in Your Area Instantly

No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.

Subscribe to our newsletter