How to Get Cash Back at Closing
When a borrower refinances their mortgage, they have two basic options. They can either refinance the loan without adding any additional cash to the balance, or they can opt to get cash back at closing. To do this, the borrower is refinancing into a cash-out mortgage. There are a number of rules and regulations involved in this process, but here is a step-by-step guide on how to obtain a cash-out mortgage.
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Instructions
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Check your credit report from all three agencies: Experian, Equifax and TransUnion. Contact the credit bureau to correct any errors. This will help raise your credit score and increase your changes of getting the best rate. Additionally, if you pay your credit cards down to less than 30 percent of the available balance, it will help to raise your score as well. It takes about 30 days from the time the corrections or changes are made to see a difference in your score.
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Fill out an application with a mortgage lender. Be sure to list all forms of income and provide the lender with copies of two years of W-2 forms, two months of pay stubs and two months of bank statements. Additionally, if you have self-employment income, provide your lender with two years of tax returns.
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Request additional money from the lender to consolidate debt, make repairs on your home or to fund another large purchase. Remember you cannot borrow more than the house is worth. In most cases, you will only be able to refinance up to a certain percentage of the value of your house. The lender will order an appraisal and the value on that appraisal will dictate how much you can borrow.
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Tips & Warnings
If you are using the cash to consolidate debt, have the attorney pay off those debts at the closing table. This ensures that the debts are paid in full and that you are not tempted to spend the money elsewhere. Additionally, to break the cycle of debt, have the credit cards canceled and pay on your mortgage as if you still had the higher monthly payments. This pays off your mortgage sooner and saves you thousands in interest over the life of the loan. As a rule of thumb, one extra mortgage payment per year cuts seven years off a 30-year mortgage.
Do not take cash out of your mortgage lightly. While the rate may be lower than a credit card, remember that you will now be paying for this debt over the life of the loan--which is typically 15 or 30 years. This greatly increases your interest over time and could end up costing you more in the long run.
