Cash-Out Refinance Loans
What is a Cash Out Refinance Loan?
This popular option is what investors and developers use by pulling equity out of their existing property and reinvesting that money into a new opportunity. It’s great for receiving funding without requiring large liquid assets in the bank. The key difference between this and a standard refinancing loan is that a cash out refinance loan allows the investor to pull out equity to use as cash.
What is "considerable equity"?
When a property has considerable equity, it means the real estate investor owns 35% or more of the property’s total value.
Why use a cash-out refinance loan?
Investors and developers utilize them so the hard work from an existing fix and flip project or rental property can be used to grow the business. It a simple, fast solution when you don't have cash on hand.
Common uses of a cash-out refinance:
The most common ways investors and developers use these are for:
- Purchasing fix and flip projects
- Purchasing rental properties
- Funds to support a real estate investing business
- Paying for renovations on a distressed property you own
What are the requirements?
Typically 3 things are needed:
- Considerable equity in a property
- A clear exit strategy (the plan to pay off the loan)
- Letter of Explanation (a formal letter stating the intention of the funds)
How is the amount determined?
Usually up to 65% of the as-is value of the property.
Is there a credit minimum?
Typically the minimum credit score required is 600. If lower than that, likely a discussion will be necessary explaining the financial situation. Low credit isn’t always a deal-breaker – often adjustments can be made to the down payment or interest rate to account for the higher risk associated with lower credit scores.