How to Reduce Debt With Home Equity Refinance
When a borrower is looking to consolidate and reduce their overall debt load, one option is to purchase a "cash-out" mortgage refinance. This type of mortgage uses a borrower's home equity to pay off other debt. In most cases, this lowers the overall monthly payment on all debts and helps the borrower get out of debt faster with more affordable budgeting due to the lower payment.
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Things You'll Need
- Mortgage loan application
- 2 months bank statements
- 2 months pay stubs
- 2 years tax returns
- Credit report
- Appraisal
Instructions
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Fill out a mortgage loan application with a mortgage lender. Be sure to include all debts on the application that you would like to consolidate in the refinance. Provide the lender with two months of bank statements (all pages), two months of pay stubs, and two years of tax returns. Additional documentation may be required based upon your situation.
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Assuming you get pre-approved for the refinance by the lender, sign all required disclosures. Allow the lender to pull a credit report on you and appraise your residence. Your home appraised value will determine how much equity you can use to pay off other debt. In most cases, you will not be allowed to borrower 100 percent of the value of the home.
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Sign all closing documents and request that the closing attorney or title company pay off all other debts with the proceeds of the mortgage at the time of closing.
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Tips & Warnings
Pretend the original debts are still in place after the refinance. Pay on the new mortgage debt with the total of all the original debt payments to quickly pay down the mortgage debt and save thousands of dollars in interest over the life of the loan.
If your home value has decreased in recent years or you owe a large percentage of its original purchase price, you may not be able to refinance your mortgage and use the accumulated equity in the home.
References
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