The most common reasons to refinance your home mortgage is to take cash out, get a lower payment or shorten your mortgage term.
Refinancing your mortgage is a great way to use the equity you have in your home. With a cash-out refinance, you refinance for a higher loan amount than what you owe and pocket the difference. Any proceeds you receive are tax-free.
Many homeowners use cash from their home to pay off high-interest credit card debt and student loan debt. You can also take cash out to finance home improvements, education or whatever you need. Since mortgage interest rates are typically lower than interest rates on other debts, a cash-out refinance can be a great way to consolidate or pay off debt. Additionally, mortgage interest is tax-deductible, but the interest on other debts usually isn’t.
You may be able to take cash from your home if you’ve been paying on the loan long enough to build equity. Additionally, you may be able to do a cash-out refinance if your property value has increased; a higher value on your home means your lender can give you more money to finance it.
It’s important to prepare your financial documents before applying to refinance your home, so you can close your mortgage quickly. Here are some of the things your mortgage lender will probably request:
If your spouse or someone else will be on the loan with you, they’ll need to provide these documents too so your lender can get the whole picture of your financial situation.
If you’re self-employed, you’ll have to provide a few more documents to demonstrate your income. Some lenders will ask to see your entire tax return so they can see the exact amount of cash in and cash out.
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