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Author: Mann Mortgage

Buying a house when you have student loan debt

Posted on by Mann Mortgage

More than half of all college students have taken on some form of debt in order to pay for their education – mostly through student loans. The average outstanding amount owed? Between $20,000 and $24,999. If you’re among those that have student loan debt, what are your options for getting a home loan? 

Do lenders look at debt?


When issuing credit, lenders biggest concern is whether a borrower will be able to pay the loan back. They use a lot of calculations to figure it out. One of the major ones is to divide the borrowers’ monthly debts by their monthly gross income. This is called a borrower’s debt-to-income ratio.  

To get an idea of your debt-to-income ratio, consider the amount you pay each month for your minimum credit card payments, auto loan, rent, mortgage, student loan, and other monthly payments. Keep in mind that lenders will look at what you pay each month, not the total amount you owe. If you have $20,000 in student loan debt and make $200 monthly payments, your lender will use the $200 monthly payments in the calculation. Now, divide the amount you pay each month by your gross monthly income (before taxes and other deductions). This is your debt-to-income ratio. 

Generally, lenders want to see, at a minimum, a ratio of 50% or less. 

Pay down your student loans before getting a house?


Thinking about waiting to purchase a home until your student loan debts are paid down can feel like putting your life on hold. Whether you should pay off or down your student debt really depends on your unique financial situation. The price of a home ownership far exceeds just the monthly mortgage bill. There’s insurance, property taxes, utilities, maintenance, and plenty of small expenses. On the flip side, making a wise investment in a home could provide you with financial stability in the right real estate market.  

Speak openly with your home loan officer to decide whether now is the right time for you to invest in a home. They’ll be able to give you expert advice about your real estate market, interest rates, and financial requirements for loans you may qualify for. 

What home loans are available to people with student debt?

Many loan options are available to people regardless of the type of debt they have. Some favorites among young borrowers with student loans are conventional, USDA, VA, and FHA loans. 

Conventional loans
If you have decent credit and can make a down payment of at least 3.5%, a conventional loan will offer you many great benefits including PMI fees that stop once you reach 22% equity in your home. 

USDA loans 
If you’re looking to purchase a primary home in an area defined as “rural” by the USDA, a USDA loan is a great choice. Chief among the benefits for those with student loan debt is a 0% minimum down payment and no private mortgage insurance fees. 

VA loans 
Another great 0% down payment option for those who are former or current members of the U.S. military. VA loans are available to fund the purchase of primary residences only. 

FHA loans 
If your credit has been diminished by student loan payments, consider an FHA loan. They’re available to borrowers with FICO credit scores as low as 500. You’ll have to make a down payment of 3.5 to 10% depending on your credit score, but it may be a good option to start building financial stability with a home. 

Should you buy a home now? 
Depending on your financial goals, taking advantage of the low interest rates might be a great choice. Contact your local loan officer to help you make the decision about whether you’re ready for home ownership or if it would be more advantageous to wait. 

Buying a home during a pandemic

Posted on by Mann Mortgage

There’s no doubt that Covid-19 has impacted how Americans are buying and selling their homes. Social distancing rules, historically low interest rates, and more people working from home have all changed, but certainly not stopped, home sales. 

What homebuying trends can we expect to continue through 2021? 

Virtual home tours

 

Don’t assume you’ll be able to attend open houses or leisurely tour homes on the market. In order to limit exposure to COVID-19, many sellers allow just the realtor and buyer into the house – with masks and gloves on, of course. No children or extra family/friends are allowed. Last year when Zillow surveyed  home sellers, 43% of them said they’re likely to try to sell their homes entirely online. 

Faster internet connections and better technology have given real estate agents a new tool – virtual tours. In addition to posting better photos, sellers’ agents are offering 3D virtual tours as part of their home listing. If you’d still like to see the home for yourself, your real estate agent can schedule an online video meeting. That way, you can watch a live video, ask questions, and talk to your agent while they tour the home for you. 
 

Low interest rates

 

Rates have dropped like they’re hot. They’re the lowest they’ve been in 50 years, and they’re projected to stay low. Mortgage interest rates are partly based on what the Federal Reserve sets for the federal funds rate. And Federal Reserve Chairman Jerome Powell told NPR in an interview in September 2020, “We think that the economy’s going to need low interest rates, which support economic activity, for an extended period. It will be measured in years.”  

Low interest rates are a boon to home buyers. Last year, 30-year fixed mortgage interest decreased by 1.07%. On an average home loan of $250,000, that’s a savings of about $150 each month between the two rates. That means buyers can afford more expensive homes – and they’re going to need those rates to stay low to compete in this real estate market. 

Sellers’ market with bidding wars

 

We’re generally in what’s considered a “seller’s market”. In many areas, more people are looking for houses than there are houses available. A sellers’ market means we can expect home prices will continue to rise, though experts predict it will happen at a slower pace than we saw in 2020. 

To buy a home in a seller’s market, be prepared to have a better offer than your competition. More than 20% of homes in the U.S. market are selling above their asking price, according to a recent Zillow report. Most commonly, it’s happening among homes priced below $259,906. And Redfin reported more than half of all offers were involved in bidding wars from May through November 2020. That means multiple offers at the same time, often driving up the price above what it was listed for in hope of winning the home. 

Fast-moving inventory

 

Homes were averaging five days less on the market in 2020 then they were just a year before. Zillow reports homes spent an average of just 25 days on the market before accepting an offer. In September, homes moved even faster – the average was under contract in just 16 days. 

What does all this mean for home buyers? When you see a house that fits your needs, make an offer quickly and be prepared to find out others have made an offer as well. Competing for homes can be an emotional roller coaster. Your best bet for staying level-headed is to work with your loan officer to set your budget and be prepared to walk away from a home you can’t afford. 

Buying a second house using a home equity loan

Posted on by Mann Mortgage

Purchasing a second or a vacation home is a dream for many people. But saving enough for a down payment may be a considerable barrier. A home equity loan could be the solution.

If you own a home and you’ve built equity in it, it may make sense to use that equity as the down payment to purchase a new or investment home. This could be done in the form of either a home-equity line of credit (HELOC) or home equity loan.

Your home’s appraised value, your equity in it, and your financial profile will all be used by your lending institution to determine whether you’re eligible for additional financing.

Can you have more than one home equity loan?

You can have as many mortgages and equity lines or loans as you can qualify for. As long as you aren’t overburdened or own more than your property is worth, there are no limits on the number of loans you can have at one time.

Your lender may be less willing to extend further lines of credit to you if you already have one outstanding with them. Rather than taking out two of the same type of loans (two HELOCs or two home equity loans), you may have better luck getting one of each instead. This is because each is looked at as a different type of credit – a HELOC with a revolving credit and a home equity loan with a fixed rate.

Finance for a down payment?

Usually, you can borrow up to 80% of the current value of your home less what you owe for your mortgage. As example, if you have a $500,000 home and owe $300,000 on the mortgage, you’d have $100,000 available for a down payment (80% of $500,000 is $400,000. $400,000 – the $300,000 mortgage = $100,000).

If you’re able to take out a loan for more than 80% of your home equity, you will likely have to pay PMI on your original home loan until you have 22% equity in it again.

Benefits to financing a second home with equity

Home equity credit offers some of the lowest consumer rates on the market because they’re secured by high-quality collateral – your home. The terms your lender can offer you are often far better than anything you could secure on a similar personal loan.

Talk to your local Mann Mortgage branch to see whether using the equity in your home is an option for you when considering a new or investment home.

Buying a Home with Challenged Credit

Posted on by Mann Mortgage

Buying a home with poor credit can be a challenge, but it’s not impossible. Your credit score – whether it’s good or bad – is just one of the factors your home lender will use to decide whether you’re eligible for a loan. 

What is a Bad Credit?

Bad or “low credit” typically means your FICO score is under 600. FICO credit scores range from 300 to 850 and represent how likely you are to pay back a loan. Your score is calculated based on your payment history, amount owed, length of your credit history, new credit, and the mix of credit you have. Your score is using by lending agencies to determine whether you’ll be eligible for a loan and at what interest rate. The closer your score is to 800, the more loan options and lower interest rates you’ll have access to. Lenders tend to define the scores as: 

Exceptional: 800+  
Very good: 740 – 799 
Good: 670 -739 
Fair: 580 – 669  
Very poor: 300 – 579 

To check your credit report annually, you can visit annualcreditreport.com to see what your current FICO score is. It’s free to use once a year and it won’t impact your credit rating. 

Minimum Credit Score Needed for a Home Loan?

There isn’t a universal minimum credit score needed to get a home loan. Instead, each mortgage lender decides the minimum credit score they’ll accept. But when a score is under 600 it’s classified as “subprime” and your loan options drop significantly. A score under 550 is going to have very limited loan options with very high interest rates. 

Other Factors Lenders Consider

Besides your FICO score, a lender will evaluate how much money you have for a down-payment, how much debt you already have, your credit history, and your income. To increases your chances at getting a loan with bad credit, the best option is to have as large a down payment as you can afford to minimize your risk to the lender.  

A potential borrower with a low credit score but a sizeable down payment and a decent credit history is more likely to be approved for a loan than someone with low credit, a small down payment, and no credit history. 

Long-Term Cost of Low Credit Scores

Since early 2020, interest rate on mortgages have dropped. Lower mortgage rates mean smaller monthly payments for principal and interest – and a lower cost for the loan over its life. That said, there’s still a big difference between how much someone with good credit will pay compared to someone with a bad credit score.  

From the chart below, you can see a borrower with a credit score of 639 will end up paying $93,638 more in interest over the lifetime of the loan than a borrower with a credit score of 760. 

MyFICO Loan Savings Calculator for $300,000 mortgage 
FICO score APR Monthly payment Total interest paid 
760 – 850 2.377% $1,166 $119,856 
700 – 759 2.577% $1,201 $132,310 
680 – 699 2.776% $1,229 $142.389 
660 – 679 2.99% $1,263 $154,750 
640 – 659 3.42% $1,334 $180,158 
620 – 639 3.966% $1,426 $213,494 

Home Loan Options for Someone with Bad Credit

FHA loans are insured by the Federal Housing Administration and are designed specifically for borrowers with low credit and lower-to-middle income. You’ll need a down payment to qualify for FHA loans, but your mortgage lender may be able to secure a loan through them even if you have a FICO score as low as 500. 

The best way to evaluate your loan options is to speak with a local mortgage expert. Based on your financial goals, loan eligibility, and local real estate conditions, they’ll be able to help you find the right loan for your needs. 

Getting a mortgage for a tiny home?

Posted on by Mann Mortgage

What counts as a tiny home?

 

What defines a tiny house (also called tiny homes) is, of course, their size. A tiny house is considered a home under 400 square feet (the average traditional home was 2,301 square feet in 2019). Some are built on permanent foundations with a septic tank and solar panels, but most often they’re built on trailers so they can be hauled from one location to another. This has led to some municipalities labeling tiny homes as “recreation vehicles” unsuitable for a primary dwelling. 

Why would you want a tiny home?

 

They’re affordable, they consume less energy, and (if they’re on wheels) you can pick up and move where the wind blows you. They cost about the same per square foot as a standard home, but because there’s less square footage, they can be a great option for people who don’t want or can’t afford a large mortgage. In the last few years, they’ve been very popular with 25-40 year-olds that use them as a step towards buying a traditional home. But they’re equally popular with people over the age of 55 who use them as a way of downsizing, a mobile home for visiting family, or as a second home on their property for visitors. 

Can you build a tiny home anywhere??

 

Despite the growing enthusiasm with tiny houses, it’s still hard to find a place to build one for full-time use. Zoning laws and building codes have minimum size restrictions that most tiny homes won’t meet. Some cities have begun to create tiny house-friendly zones, but they’re rare. Your best bet? Keep your tiny home on wheels or don’t use it as your full-time residence. If that’s not an option, be sure to talk to your local mortgage originator or other housing expert that understands your local building codes and zoning restrictions to see if you can live in a tiny home or not. 

Home loans for tiny homes?

Maybe. If your tiny house is on wheels (and most are) it’s almost always classified as a recreational vehicle (RV). You can’t get a home loan for an RV even if you plan to live it in full-time – you’ll need an RV loan. But, if you build your tiny home on a permanent foundation, you may be able to get a home loan for it. Home loan originators (your bank, mortgage company, or credit union) will likely have a minimum amount they can loan for a home, usually around $50,000. So long as you meet their minimum requirements, you may be able to get a mortgage for the tiny home of your dreams. Your best bet is to reach out to your loan originator directly to see whether you would qualify for a tiny house home loan. 

Other options for purchasing a tiny home

 

If you already own a home and want to add a tiny home to the property it’s on, consider getting a home equity line of credit to finance it.  To talk to a loan officer at Mann Mortgage on options and potential alternatives, please get in touch.

The future of tiny homes

 

Job losses due to Covid, stagnant wages, and increased property prices all make it more difficult for first time homeowners to break into the market. There will certainly be a market for tiny affordable houses, but the real hurdle is the lack of legal places to live in one. The American Tiny House Association and the Tiny Home Industry Association are both working hard to promote best practices in home construction and recognize them as a safe and permanent housing option.  

If you have any question about tiny homes in your community or whether you’d be eligible for a home loan for your tiny home, contact your local mortgage expert at Mann Mortgage today. 

Mann Mortgage Named one of America’s Best Place to Work by Outside Magazine

Posted on by Mann Mortgage

Each year, Outside magazine accepts submissions from companies around the U.S. to be included in their prestigious list of Best Places to Work. Outside vets each company’s workplace culture, demographics, work-life balance, and perks of the job. In addition, they do an extensive anonymous survey with current employees to get their take on the work environment. Only those companies that excel in both areas – providing excellent company benefits and getting great reviews from employees – make it to the list of 50 Best Places to Work.

To be eligible for the award, everyone at Mann Mortgage completed an anonymous survey. They were asked to rate areas such as their relationship with their supervisor, their work environment, their confidence in the leadership team, their role satisfaction, and their pay and benefits. The survey results were 75% of Mann’s total score, and they were high enough to rank us as the #12 Best Place to Work in the US.

This year, a theme among companies that made the Best Place to Work list was embracing the new working environments where social distancing and creative team building are the norm. At Mann, we quickly adapted to working, meeting, and partying remote – 40% of us now work from our home offices. Like many of the companies on the list, we’ve found working remote to be an effective and efficient way to work and we’ll continue to allow it, even once the pandemic is over.

“We’re thrilled that we, a mortgage company, are included in this list of exceptionally innovative companies. These organizations are defining what great corporate culture looks like in this country, and we are honored to be included with them,” said Cassidy O’Sullivan, business executive for Mann Mortgage. “We want Mann to be a positive place where people are excited to come to work and have a voice in the company.”

Mann Mortgage’s positive corporate culture was also recognized by Mortgage Professionals Americawho gave the company a Top Mortgage Workplace 2020. Of the hundreds of mortgage companies that were nominated, Mann Mortgage was one of only 29 who received the award.

“These awards show our employees do a great job making each other feel welcome, needed, and heard” said company CEO, Jason Mann, “and I’m just so grateful to be part of such an exceptional team.”

Want to Join the Mann Mortgage Team?

Mann Mortgage is based out of a beautiful Kalispell, Montana. We’re always on the lookout for talented and fun-loving people to join our team. Our corporate office hires for positions such as quality control, underwriters, and product specialists. We also have branch offices across the United States that hire loan officers, production assistants, processing agents, mortgage sales managers, and more. You can view and apply for open positions at mannmortgage.com/careers or email your resume and cover letter to jobs@mannmortgage.com.

What is a home equity line of credit?

Posted on by Mann Mortgage

A home equity line of credit (HELOC) uses the equity you’ve built in your home as collateral to get an additional loan. Since you’re using your home as collateral, lending institutions generally are able to offer much more favorable interest rates than you would get from an unsecure borrowing source (like a credit card company).  

How much money can you get from a HELOC?

Each lending institution has different guidelines that dictate how much they can lend you. Their guidelines are usually based on your loan-to-value ratio (LTV), which is the amount of principal on your mortgage compared to your home’s appraised value. Most often, you’ll need at least 20% equity in your home (which is a LTV of 80%) to qualify. As example, if your home’s current value is $300,000 and the remaining balance on your mortgage is $250,000, you would have an LTV of 83%. For many lending institutions, you would not qualify for a HELOC.  

However, if your home’s current value is $300,000 and the remaining balance on your mortgage is $175,000, your LTV would be 57.9% and you would normally qualify for a HELOC for up to 80% of the equity in your home. In this example, you may have access to $65,000. 

Be aware that many lenders won’t give you a HELOC for less than $25,000.  

How do you get the cash?

Much like a credit card, you’ll have a revolving line of credit available. You can access your funds through an online transfer, a check, or a credit card. As you borrow more from your line of credit, your payments will increase though the rate of interest will remain the same.  

When Do You Pay Back HELOC Funds?

Most have two phases. The first is the “draw period” which may last years (often up to 10) during which you can access your available credit. During the draw period, you’ll make monthly interest-only payments on the funds you withdraw. At the start of the second phase, you’ll no longer have access to your funds and you’ll have to start making regular principal-plus-interest payments until your balance is $0. Most lenders allow the second phase to last around 20 years. 

Benefits of a HELOC

Even if you get a HELOC, you don’t have to use the funds. As long as your lender doesn’t require you to do minimum draws, it could be a good source of emergency cash or a temporary safety net. If you do need to use the cash, the interest rates are lower than the rates tied to credit cards. 

Cons of a HELOC

The rate on your HELOC might fluctuate, and if it goes too high, you may have a hard time paying off your interest. Furthermore, your lender may decide to reduce your line of credit if your home’s value takes a drastic dip. And, don’t forget your overall debt load will increase with a HELOC or any other second mortgage. 

Is a HELOC right for you?

If you have enough equity built into your home and need cash for a home improvement, to cover medical bills, to pay off credit cards, or to sustain your lifestyle after losing a job, a HELOC might be a great solution. To find your home’s current value and how much you could get from a HELOC, contact your local Mann Mortgage expert today. 

Alternative options

One potential alternative is a cash-out refinance, which you could also use to pay for a home renovation or to pay off credit card bills. Learn more about cash-out refinances. If you have questions on HELOCs or other programs that will let you leverage your home equity, please get in touch with one of our local mortgage experts today.

6 things you shouldn’t do when you’re pre-approved for a mortgage

Posted on by Mann Mortgage

Just because you’re pre-approved for a loan doesn’t mean you’re guaranteed to get final approval on your loan. When your offer has been accepted and it’s time to begin closing on your loan, your mortgage lender is going to take another detailed look at your credit history, assets, income, and FICO score. You want to make sure you look just as good as you did the day you got pre-approved. How can you do that?  

1. Don’t miss payments   

They’re going to see whether you’ve been late or missed any payments on your credit cards or loans since you were pre-approved. Just one 30-day late payment can negatively impact your credit report by many points. Make sure you have all your medical bills, parking tickets, and utility bills up-to-date and paid too! 

2. Don’t apply for new credit 

Applying for new credit will lower your credit score and, if you’re approved, increase your debt-to-income ratio – a key factor lenders consider when you apply for a mortgage. These changes could affect the terms of your loan or get it denied altogether.

3. Don’t change jobs  

This might be out of your control, but it’s best to stay with the job you had when you had your loan pre-approval. Switching jobs could signal a change in income, which may impact the amount you’re approved to borrow.

4. Don’t make large purchases

You might be tempted to start shopping for furniture or appliances for your new home, but you shouldn’t do it. If you put the charges on your credit card, your debt-to-income ratio will change. And if you pay cash, you’ll have less money for a down payment or as an asset. Hold off on any large purchases until you’ve closed on your new home!

5. Don’t make a large cash deposit 

Any big cash deposits into one of your accounts prior to your mortgage closing looks fishy to an underwriter. They’re trained to spot evidence of borrowers needing to be gifted money for their mortgage – a clear sign the borrower may default. If it’s inevitable that you’ll have a deposit over $1,000, expect to be able to show the origin of the funds to your mortgage company. Transferring money between your accounts is generally fine.

6. Don’t refinance for lower rates    

Don’t refinance your loans for a lower rate until after your home loan has closed. Refinancing is considered taking out a new line of credit, which isn’t good for someone looking for a mortgage. An established loan you’ve been making regular payments on looks better to mortgage underwriters than a new lower-interest loan you haven’t made many payments on yet.

What should you do? 

Talk to your mortgage expert if you have any question on your current credit score or how your actions will affect your pre-approval. Your local Mann Mortgage branch is dedicated to making your experience both personalized and hassle-free.

Closing on a home – how to prepare

Posted on by Mann Mortgage

You’re getting ready to close on a new home – congratulations! You’ve completed your house hunt, you negotiated the price, and your offer was accepted. Before you get handed the keys to your new house, there’s one final step you’ll have to complete – closing on your home.

What is closing?

It’s the final step to transfer ownership of the property to you once all contingencies for the sale have been eliminated. To prepare for closing, your lending agency will originate and underwrite your loan and the title company will prepare paperwork for you to sign and make the transfer of ownership legal.

What happens during closing?

As soon as the seller accepts your offer and all contingencies have been met, the sale of the home is “pending” and closing begins. A thorough home inspection will be completed by a professional inspector to uncover any defects or local building code violations that might impact the value of the house. Your mortgage company will begin the time-consuming task of originating and underwriting your loan. They will be taking a very close look at your finances to decide whether you’ll repay the thousands of dollars you’re asking them to lend you.

Pre-approval helps

Being pre-approved for a loan means your lender already pulled your credit score, verified your income, and gave you an idea of the type and size of mortgage you qualify for. Having this information makes it likely you’ve selected a home you can afford and your lender will help you finance. But being pre-approved is not a guarantee you’ll be given a final approval for your loan. If anything has happened since you were pre-approved that might affect your finances (losing a job, taking out another loan, missing payments on your mortgage, etc.), you could be denied the loan.

How long does closing take?

It took an average of 49 days in November 2020 for all the paperwork to be completed and the transfer of ownership to be finalized. The number fluctuates a bit every month, but 30 to 60 days is a good estimate. The dedicated loan officers at Mann Mortgage strive to close loans in 30 days or less.

Have your documents in order

During closing, be ready to hand over a lot of documents to your mortgage company for final approval of your loan. Your loan officer will likely have a lot of questions for you. Answer their questions quickly to avoid delays in your closing date.

You’ll probably need the following:

  • Your last two tax returns
  • Your last two pay stubs
  • Your last two W2 statements
  • Your bank statements for the last one to three months

You may also need:

  • Credit card statements
  • Settlement statements
  • Verification of rent
  • Divorce decree
  • Bankruptcy documents
  • Statement of Social Security or retirement income
  • Copies of rental lease agreements on rental units
  • Contact information for your homeowner’s insurance agent
  • A profit and loss statement
  • Proof of additional income

Expect to pay closing costs

Some common closing costs are listed below. All of them have to be paid when closing on your new house.

Unless otherwise negotiated by your Realtor,
the buyer pays all the following:

  • Home inspection fee ($500 to 1,000)
  • Loan origination and underwriting fee (0.5% to 1% of the loan amount)
  • Credit check fee ($25 to $60)
  • First month’s interest (varies)
  • Flood certification fee ($15 to $25)
  • Title/escrow services and insurance ($200 to $400)
  • City or county recording fee (varies)
  • Transfer taxes (varies)
  • Realtor or broker fee (2% to 7% of the home’s price)

This isn’t an exhaustive list of every document and fee you’ll pay, but it will give you a good idea of where to start. If you have trouble finding documents your loan officer requests, ask them if there are alternative documents you can provide in their place.

Be prepared for closing day

Closing day might start with a final walk-through of the house to make sure it is in good shape and the seller met all contingencies. At the appointed time, you and the seller will meet and sign documents with your title or escrow agent, real estate agent, and possibly an attorney. Take as much time as you need to make sure you understand what you are signing.

Once all the paperwork is signed and any fees are paid, the ownership of the house it transferred to your name and the home is yours.

At any point, if you have any questions about your closing costs, loan options, or getting pre-approved, be sure to talk to your local loan expert at Mann Mortgage. We are here to help you make your closing as seamless and quick as possible.

What is a cash-out refinance?

Posted on by Mann Mortgage

So What is a cash-out refinance?

A cash-out refinance is a type of loan where a borrower has a mortgage they are currently paying off and they replace it with a new mortgage for more than their remaining principal. The difference between the principal balance of the first mortgage and the new one is given to the borrower in cash.

Cash-out refinance vs a standard refinance

In a standard refinance, borrowers work with their lender to get a lower rate of interest or a new payment schedule. Once the standard refinance is secured, they have a new monthly payment amount based on the new agreement – but their balance on the loan remains the same. In a cash-out refinance, a borrower works with their lender to pay off their home’s mortgage balance with a new loan based on their home’s current value. The difference between the original mortgage the borrower is paying off and the new loan is kept by the borrower. In order to have some equity in their home, most cash-out refinances limit the amount a borrower can receive at 80-90% of their home’s equity in cash (VA refinances don’t have this requirement).

In other words, don’t expect to pull out all the equity you’ve built into your home. If your home is valued at $350,000 and your mortgage balance is $250,000, you have $100,000 of equity in your home. You could do a cash-out refinance of somewhere between $80,000 to $90,000.

Benefits of a cash-out refinance

If interest rates are at a new low, you have equity built into your home, and if you would like cash on hand to pay off high-interest credit cards or fund a large purchase, a cash-out refinance is something you might want to consider.

Cons of a cash-out refinance

There are fees involved in a cash-out refinance, and you’ll have to make sure your potential savings are worth the cost. Like any refinance, you’ll pay closing costs of around 2% to 5% of the mortgage. And if your lender allows you to take out more than 80% of your home’s value, you’ll have to pay private mortgage insurance (PMI). Freddie Mac estimates most borrowers will pay $30 to $70 per month for every $100,000 they borrowed.

And, don’t forget your overall debt load will increase with a cash-out refinance.

Alternative options

One potential alternative is a home-equity line of credit (HELOC), which you could also use to pay for a home renovation or to pay off credit card bills. Learn more about what HELOCs are and how they work.

Should you get a cash-out refinance? If you have enough equity built into your home and you get a great rate, they might be a great solution for a home improvement or renovation. To find out what the current rates are and to check your home’s current market value, contact your local Mann Mortgage expert today.

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