How to Refinance Paid for Property & Cash Out Equity
Owning real estate "free and clear" means that you have no monthly mortgage payment to worry about. However, there may be times when you need cash or just want to increase your liquidity without selling your property. As the owner, you may apply to refinance your paid for property and obtain cash out equity from the loan. As long as you have realistic expectations and a visible means for repaying the new loan, this process will be similar to getting a mortgage to buy a new property.
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Instructions
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Determine the approximate value of your property. Knowing how much it is worth will give you an idea of the amount of loan that you will ask for. To do so, talk to a real estate agent in your area or get an estimate of your home's value for free on a website like Zillow.com (see the Resources section).
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Tell the lender how much cash you would like to take out of the property's equity.
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Calculate the amount of equity that you wish to cash out of the property as a percentage of what the property is worth. This is known as" loan-to-value" and is an important factor in what kind of loan options the borrower will have. To calculate the loan-to-value, divide the amount of cash desired by the value of the property. For example, requesting a loan for $40,000 on a property worth $100,000 would be a 40 percent loan-to-value (40,000 / 100,000 = 0.40). Websites, like Bankrate.com, offer loan-to-value calculators to help you determine this amount (see the Resources section).
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Research current mortgage loan rates as they apply to your specific situation. For example, if you desire a loan for 90 percent of the property's value, don't compare rates for loans that require 80 percent or less loan-to-value because those will not apply.
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Contact lenders offering loans that meet your needs. Discuss the kind of loan that you are looking for and the nature of your property. Ask for a good faith estimate (GFE), which details all estimated costs for obtaining the loan, before committing to a lender. Compare total loan costs including any points and fees.
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Obtain and complete the mortgage application from the lender. Provide all requested documentation, which may include pay stubs or tax returns.
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Sign documents after the loan is approved. Typically, this is done at a title company's office or at the bank where loan officers and notaries are on hand to certify that the loan agreement and all paperwork have been signed properly.
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