Mortgage and Portfolio Loan Guide

E021: Cash Out Refinance With Bad Credit

E021: Cash Out Refinance With Bad Credit

 
 
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Getting approved for cash out refinance when you have bad credit. Everything you need to know. Learn more at https://www.balanceprocess.com/cash-out-refinance-with-bad-credit/

Cash Out Refinance Texas

Getting a cash out refinance in Texas is possible with conventional, FHA, and portfolio loans (for unique credit and income scenarios).

In today’s post I am going to cover everything you need to know about getting approved for a cash out refinance in Texas.

Is cash out Refinancing Allowed in Texas?

The answer is yes. But there are some restrictions to keep in mind per Texas 50(a)(6) Laws.

Many lenders do not offer cash out refinance Texas loans because they have different compliance rules than all other states, but from a borrowing perspective most of the same loans are available.

cash out refinance lenders in texas

3 Ways to Get Approved on Cash Out Refinance Texas Loan

  1. Conventional Loan – If you have good credit and seeking max cash out, a conventional loan might be the best direction to consider. That is because you won’t have to pay PMI, and the interest rates are competitive. These are full documentation loans with traditional income requirements.
  2. FHA Loan – If your credit is not perfect, an FHA loan may be the route to consider. FHA is a great option to explore because of competitive rates, but will require a mortgage insurance premium to be included in the payment.
  3. Portfolio Loan – If you have unique credit or unique income circumstances, a Portfolio Loan might be the loan you’re looking for. Portfolio loans are approved with more of a common sense approach than conventional or FHA. [more on portfolio loans here]

How Does a Cash Out Refinance Work?

A cash out refinance is a mortgage where the borrower uses a portion of the existing equity in the home to pay off other debt or do home improvements.

The amount currently owed on the home is increased to allowable or desirable amount per the goals of the borrower. Also, costs and escrows are added to the loan balance to minimize out of pocket expense for the borrower. Typically only the appraisal fee is required as an out of pocket expense. Everything else can be “rolled into the loan”.

“Equity” is the difference of principal balance owed and fair market value.

Example: if you owe $200,000 on your home, and it appraises at $300,000, you currently have $100,000 in equity.

In a case like that, depending on credit score, you may look at doing a cash out refinance for a total loan amount of $240,000. This would mean you are doing a refinance with 80% loan-to-value ratio. You would take the proceeds (minus costs and escrows for taxes and insurance) and use it to accomplish your original cash out goals.

Why take cash out?

Here are some reasons people use their home’s equity to do a cash out refinance:

Debt consolidation.

Consolidating high interest debt is perhaps the most popular reason for doing a cash out refinance. By consolidating unsecured debt into your mortgage, you almost always end up with a much lower rate, and you turn your interest payment into a tax deduction. Mortgage interest is tax deductible. Credit card and personal loan interest is not tax deductible. By consolidating debt, there is almost always very significant monthly savings.

Home improvements.

Many major home improvements can be very costly. For that reason, a cash out refinance may be the perfect option if you need a new deck, roof, septic system, or add square footage. Doing such improvements can drastically improve your home value. At the very least doing these improvements can make it more desirable for buyers when it’s time to sell.

Pay off medical bills or other collections.

When you have an unexpected medical bill or an unforeseen collection it can be a challenge to pay them off in full. Do doing a cash out refinance is a tool many borrowers use in order to get a fresh start, and get back on track.

Increase cash reserves for unexpected emergency.

When doing everything you can to make ends meet, it can be tricky to consistently put enough away in reserves. Nerdwallet.com suggests that a person should have available emergency funds that cover three to six month cushion of living expenses. This is in case of major injury, loss of job, or divorce. A cash out refinance is often a tool to put away those reserves.

Credit Requirements for Cash Out Refinance in Texas

Just the same as all other states, your credit is a big determining factor when considering what mortgage program will fit best.

For traditional financing you’ll need to be 620+ credit, and at least 2 years outside of a bankruptcy, and 3 years from foreclosure.

If you are below 620 credit or have a more recent major credit event, a portfolio loan will likely be needed.

Low credit cash out refinance in Texas is okay.

If you have at least 500 credit score and strong equity, we may be able to help – depending on employment/income circumstances.

cash out refinance texas calculator

Cash Out Refinance Texas | Investment Property

These loans are available on primary residence, second home, and investment property.

Many lenders do not allow these on investment property, so it just a matter of connecting with the right lender.

For investment property the maximum loan to value ratio is 80%. If the property appraises for $200,000 the maximum loan amount would be $160,000.

Minimum credit score when doing a cash out refinance on investment property is 580. This would be done on portfolio loan only.

For primary residence, minimum credit score is 500.

Keep in Mind

  • Available on primary residence, second home, and investment property
  • Good credit, fair credit, bad credit okay
  • Must have owned home for at least 12 months to use new appraised value
  • Traditional and alternative documentation loans available

In Short

A cash out refinance can be a major benefit for you depending on what you’re looking to accomplish. The key is to have strong equity and established stable income to show ability-to-repay the loan.

If you have been told you do not qualify for a cash out refinance in Texas:

portfolio loans

I invite you to reach out.

Get your questions answered.

 

We have been able to get many borrowers approved for cash out refinance in Texas when other lenders said it couldn’t be done.

If I cannot help, I should be able to point you in the right direction at the very least.

self employed home loans

 

Cash Out Refinance with Bad Credit

Tapping into your home’s equity to do a cash out refinance with bad credit may be a great option if you’re looking to consolidate high interest debt or make improvements to your home.

Here you’ll find everything you need to know about how to get approved for such a loan and what to expect when refinancing your home with a cash out or debt consolidation mortgage.

What is a cash out refinance?

When you own a home, typical market conditions provide natural appreciation of your property. This means over time the value of your home increases. As the value increases, you gain more equity in your home.

With a cash out refinance, you can tap into that equity to accomplish your financial or home improvement goals. When you refinance you pay off the existing mortgage loan and get extra cash out to cover other debt you’d like to pay off or make home improvements.

Why would a homeowner do a cash out refinance?

A cash out refinance is done for many reasons. Here are some of the most common scenarios:

  • Consolidate high interest credit card debt
  • Make improvements to the home
  • Pay for children’s college
  • Pay off medical bills or other collections
  • Increase cash reserves for unexpected emergency

Cash out refinancing is available for perfect, good, fair, and bad credit. The main factors that are considered are equity (amount borrowed vs. home value) and income (ability to repay).

A cash out refinance can be done on a primary residence, second home (vacation home), and investment property. The max loan to value ratio will depend on property type, occupancy, and credit score.

Example: if you have perfect credit, and it’s a 2 unit investment property, you may be limited to 70% loan to value. If it’s a primary residence and you have 620 credit score you may be limited to 85% loan to value.

Cash out refinance loans are available for credit as low as 520. Must meet equity and income requirements.

What are the benefits of doing a cash out refinance on your home?

When you consolidate your high interest credit card debt with a cash out refinance there are several incredible things that happen. Paying down your credit cards typically results in higher credit scores.

The credit bureaus (experian, equifax, transunion) score you based on the amount available in comparison to how much you have used. The lower amount you have used compared to the amount of credit available to you will only help your scores in a positive way.debt consolidation mortgage

The interest rates on credit card debt are typically much higher than mortgage rates. AND the interest on credit card debt is NOT tax deductible. The interest you pay on your mortgage IS tax-deductible. Many home owners’ largest tax deduction is their mortgage interest.

By rolling your credit card debt into your mortgage you not only decrease you overall monthly payments, but you also set yourself up for success in terms of tax deductions in many cases.

Take a look at your most recent credit card statement. How much of your payment went toward principal? Not much right?

The tricky thing about credit cards is the minimum payment is manageable, but the minimum payment never gets you anywhere in terms of paying down the principal balance.

By consolidating it into the mortgage, you create a manageable plan to pay off your debt.

Cash out refinance to complete home improvements

Using the equity in your home to improve your home will likely increase the fair market value of your home. Keep in mind, it’s not a dollar for dollar trade-off. Just because you put $20K into new floors and appliances, that doesn’t necessarily increase the value of your home by $20K.refinance mortgage bad credit

Every market is different and some upgrades provide more value increase than others.

The biggest benefit of using your home’s equity to make improvements is it allows you to do the things that you have always intended on doing, but have been unable to save for because life gets in the way.

Improvements like:

  • A new deck/porch
  • Replacing carpet
  • New appliances
  • Roof
  • Improved landscaping
  • and more

What if I have bad credit, can I still do a cash out refinance?

There are several different mortgage options available when looking at getting approved for a cash out refinance. For good credit a conventional loan will probably be the best route to take. For fair to poor credit, an FHA loan will probably be your best route.

If you are a veteran of the US armed forces, and eligible for VA financing, you may be able to do a cash out refinance up to 90% of your home value even if you have credit below 580.

If you do not meet FHA or VA guidelines because you have had a more recent bankruptcy, foreclosure, or short-sale; a portfolio loan will likely be your best option.

Portfolio loans are for scenarios that are more unique and require a “common sense” approval approach. Portfolio loans are less strict than traditional financing, and are intended to be a short-term fix for short-term circumstances. Once you meet traditional lending guidelines you’ll want to refinance out of the portfolio loan.

More on portfolio loans here.

  • Low Credit scores okay
  • Primary residence, vacation home, and investment property
  • Single family home, 2-4 unit, condominium, manufactured homes allowed
  • Recent bankruptcy, foreclosure, short-sale considered

In Summary

There are many benefits to doing a cash out refinance. If you are not sure if you qualify for a cash out refinance whether you have good or bad credit please feel free to reach out.

I’ve been able to help many homeowner’s who have been told by other lenders that they don’t qualify.

I invite you to reach out. 

 

Get your questions answered.

If I cannot help, I should be able to point you in the right direction at the very least.

 

 

self employed home loans

Adam Lesner | NMLS 198818

Michigan, Massachusetts, and Florida. Also offering financing in most states across the US including (but not limited to) Georgia, North Carolina, South Carolina, Alabama, Arizona,

California, Colorado, Delaware, Washington DC, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Ohio, Oklahoma, Oregon, Tennessee, Virginia, Wisconsin.