Cash out refinancing rests on your credit score and two important ratios: the Loan to Value (LTV) ratio and the Debt to Income (DTI) ratio.
First, cash-out refinancing means you want to take out part of the equity of your home or rental property as cash and make a new loan with a higher balance on your home. Equity is the difference between the amount owed on the loan and the current purchase price of the home or property. An appraisal will give you the current fair market price of your home, how much you could sell it for. There has to be a positive difference between the value of your home and the amount you own on it. You have to have equity in order to have any cash to take out and then you can take out only part of the amount, depending on the type of loan you have.
The LTV is the ratio between the principal amount of the mortgage balance, at origination or thereafter, to the current value of the underlying real estate collateral. The ratio is commonly expressed to a potential borrower as the percentage of value a lending institution is willing to finance. The ratio is dynamic, and varies by lending institution, property type, geographic location, property size, etc.
Current loan ÷ approximate value = LTV
The DTI is one of several financial calculations performed by your lender to determine if you can afford a particular monthly payment. The debt ratio (also known as the obligations ratio) is the sum of all your monthly debt payments including your total monthly mortgage payment divided by your total monthly income. Typical acceptable debt ratios for conventional loans are 36 – 38%, FHA loans are 41 – 43%, and VA loans are 41%.
Total Debt Payments per month ÷ monthly income = DTI
I can help you with cash out refinancing. Just give me a call or send an e-mail and I’ll call you.
REI Capital Resources is a loan originator for select investor single-family residential projects. Our goal is to provide fast closing loans to fund your investment projects so you don’t lose a good deal.
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