A cash-out refinance is a great option for homeowners who want to tap their equity and avoid the hassle of dealing with multiple monthly mortgage payments.
Here’s how it works: With a cash-out refinance, a lender gives you a new loan that is usually up to 80% of your home’s value. You’ll pay off your existing mortgage with some of the funds, and whatever is left over is yours to spend as you wish. Then, you’ll pay off the larger loan monthly over a set term — typically 30 years.
Other home equity products — such as a home equity line of credit (HELOC) or a home equity loan — require borrowers to take out a second mortgage, which means you’ll have two loans to manage and may need to work with an additional lender.
Like any mortgage, a cash-out refinance is backed by the value of your home. If you fail to make on-time payments, the lender could force you into foreclosure.
Here are the typical requirements for a cash-out refinance loan:
Below, CNBC Selectdives into the best cash-out refinance lenders and how to decide whether this type of refinance is right for you.
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Best cash-out refinance lenders
If you want to close on a loan ASAP, look into Rocket Mortgage, which has an average close time that is nearly half the industry average. Additionally, Rocket is known for its customer service, has an A+ from the Better Business Bureau, and consistently ranks among the top lenders in J.D. Power’s mortgage customer satisfaction surveys.
Rocket Mortgage Refinance
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Annual Percentage Rate (APR)
Apply online for personalized rates
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Types of loans
Conventional loans, FHA loans, VA Interest Rate Reduction Refinance Loan (IRRRL) and jumbo loans
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Fixed-rate Terms
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Adjustable-rate Terms
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Credit needed
580 if opting for FHA loan refinance or VA IRRRL; 620 for a conventional loan refinance
For borrowers with less-than-perfect credit, consider Magnolia Bank. This lender will accept borrowers with credit scores as low as 580 for conventional refinancing. It also offers online tools, including a calculator, to help you break down what your refinance would look like and whether it’s right for you.
- Available in all 50 states
- Specializes in home loans for veterans
- Faster-than-average closing rate
- Only has locations in Kentucky
- No home equity loans or home equity lines of credit
If you have a high-value home and need a jumbo refinance — or a loan that exceeds the conforming loan limit for your area — loanDepot is a great option. It offers jumbo cash-out refinance loans up to $3 million. It also offers fully remote closings in states where this is legal, so you can complete your refinance from home.
LoanDepot
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Annual Percentage Rate (APR)
Apply online for personalized rates
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Types of loans
Conventional loan, FHA loan, Jumbo loan, VA loan, renovation loan, HELOC and adjustable-rate mortgage (ARM)
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Terms
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Credit needed
As low as 500 for FHA loans with a 10% downpayment; 580 for FHA loans with a 3.5% down payment
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Minimum down payment
Starting at 3.5% for an FHA loan
How do I decide if a cash-out refinance lender is right for me?
A cash-out refinance is great for someone who needs to tap their home equity and could get a lower rate than their current mortgage by refinancing.
If you’re just looking to get a lower rate and switch your term from a fixed rate to an adjustable rate, or vice versa, you’ll be better off sticking with a rate-and-term refinance, which only covers the value of your existing mortgage.
If you have a mortgage rate that is lower than what you could get on a cash-out refinance but want to tap into your home equity, you may be better off taking out a home equity loan or line of credit instead.
That way, you get to keep your mortgage and rate, and you will only pay the higher interest on the extra you take out through the secondary financing.
Here are some of our favorite HELOC lenders if you decide that option is best for you.
Unlock the value in your home by exploring home equity loans and lines of credit
Offers in this section are from affiliate partners and selected based on a combination of engagement, product relevance, compensation, and consistent availability.
Pros and cons of a cash-out refinance
Pros
- You can access cash by borrowing against your home’s equity
- You’ll have only one mortgage payment each month, compared to the multiple payments you could have with a HELOC or home equity home
Cons
- The equity in your home will decrease
- You will have to pay back a larger amount
Cash-out refinance FAQs
What can I use the money from a cash-out refinance for?
The extra money you receive from a cash-out refinance after settling your existing mortgage is yours to put toward whatever you choose. There are no restrictions on what you can spend it on. However, experts typically recommend only spending money you’ve gotten through home equity financing on things that will potentially increase your net worth or home value. For example, paying for renovations.
How much equity do I need to get a cash-out refinance?
You typically need to own 20% of your home outright to qualify for a cash-out refinance.
What credit score and debt-to-income ratio do I need to get a cash-out refinance?
Lenders typically require a 620 credit score and 43% to 50% debt-to-income ratio for a cash-out refinance.
Why trust CNBC Select?
At CNBC Select, our mission is to deliver high-quality service journalism and comprehensive consumer advice to our readers, enabling them to make informed financial decisions. Every mortgage review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties and we pride ourselves on our journalistic standards and ethics.
Our methodology
CNBC Select reviews mortgage products using a variety of criteria, including average rates, terms, availability, fees, types of loans offered, online experience and customer satisfaction.
Additionally, we incorporate findings from independent sources, including lender scores from the J.D. Power mortgage origination and servicing surveys and ratings from the Better Business Bureau.
For home equity loans, we review rates, repayment terms, the amount of equity required and the minimum and maximum loan amounts available.
We also consider requirements for credit scores, debt-to-income ratios and combined loan-to-value ratios.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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