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Cash-Out Refinance Loans

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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:

  1. Considerable equity in a property
  2. A clear exit strategy (the plan to pay off the loan)
  3. 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.

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