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Everything You Need to Know About Cash-Out Refinancing in North Carolina

Cash-out refinancing allows homeowners to leverage their equity into cash, thus granting opportunities to accomplish their financial goals. Whether you are looking to consolidate debt, make home improvements or add to your investment portfolio, cash-out refinancing is a great option for homeowners in North Carolina.

At Blue Water, we strive to help homeowners determine the best refinancing option for their unique circumstances. Read on to learn everything you need to know about cash-out refinancing in North Carolina.

  1. How Cash-Out Refinancing Works
  2. How to Qualify for Cash-Out Refinancing
  3. Different Cash-Out Refinancing Options
  4. Is Cash-Out Refinancing Right for You?

How Cash-Out Refinancing Works

Cash-out refinancing is a way to leverage the equity that you have in your home. The process works by replacing your existing mortgage with one that is of higher value to receive a certain percentage of your home equity in cash. Refinancing can help you unlock better loan terms, including lower interest rates, which in turn can help you gain more financial stability.

The majority of lenders allow homeowners to borrow up to 80% or 90% of their home’s value in cash. Homeowners with VA loans can even receive up to 100%. Cash-out refinancing is often more beneficial than taking out a second mortgage or applying for a personal loan because you get to decide how to use the money that is borrowed against the value of your home.

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How to Qualify for Cash-Out Refinancing

To qualify for cash-out refinancing in North Carolina, you will likely need to meet the following criteria:

  • A Sufficient Amount of Equity in Your Home: You will need to have a good amount of equity in your home in order to cash out. In most cases, the lender requires you to keep 20% of your home’s value, meaning you can cash out up to 80%.
  • A Credit Score of at Least 620: Refinancing generally requires a credit score of at least 580, but cash-out refinancing requires a score of 620 or higher. If your score is under 620, you may want to look into FHA cash-out options instead.
  • A Debt-to-Income (DTI) Ratio Under 50%: The DTI ratio is the amount of your monthly debt payments divided by your total monthly income. So, if your monthly debt payments are under $2,000 and you earn $4,000 a month in income, you are in a good position for cash-out refinancing.

Different Cash-Out Refinancing Options

North Carolina homeowners have three different cash-out refinancing options:

Conventional Cash-Out
This option is for homeowners with high credit scores and a good amount of value in their home, or at least 20% equity. The borrowing amount is capped at 80% of the home’s value.

FHA Cash-Out
This option is for homeowners with lower credit scores or who have experienced bankruptcy within the last few years. The borrowing amount is capped at 80% of the home’s value.

VA Cash-Out
Eligible veterans can use this option to receive up to 100% of their home’s value. However, industry experts recommend that borrowers do not cash out more than 90% of their equity.

We’re here to help with your cash-out refinancing needs. Contact us to learn the best refinancing options for your home.

Is Cash-Out Refinancing Right for You?

Every homeowner’s situation is different, so it is important to assess all of your available options. To determine if cash-out refinancing is right for you, ask yourself the following questions:

  • What are your current mortgage terms?
  • How much equity do you have in your home?
  • What is the value of your home?
  • What are your short-term and long-term goals?

Cash-out refinancing is recommended if:

  • You have a good amount of equity in your home.
  • You qualify for a lower interest rate than your existing mortgage.
  • You are planning to live in your home for the next several years.
  • You are planning to use the cash for financially beneficial purposes, such as paying off debts or increasing the value of your home.

Cash-out refinancing is not recommended if:

  • You have only been in your home for less than a year.
  • You do not have sufficient equity in your home.
  • You do not plan on staying in your home for the next few years.
  • You are planning to use the cash to pay off debt, only to accrue more debt later on.
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Other Refinancing Options

If cash-out refinancing doesn’t seem right for you, there are several alternatives to explore. Here are a few other loans worth considering:

Home Equity Loan (HEL): Home equity loans are quite common and will allow you to borrow separately from your existing mortgage with fixed interest and payments.

Learn more: The Difference Between a Cash-Out Refinance and a Home Equity Loan.

Home Equity Line of Credit (HELOC): A HELOC is much like a credit card, providing a revolving line of credit that you can borrow from when necessary. HELOCs operate on adjustable interest rates.

Personal Loan: If you would prefer a loan that is independent of a mortgage, a personal loan might be for you. Banks can usually offer a lower interest rate than credit cards, making them a fitting option for debt consolidation.

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Rate-and-Term Refinance: With this option, North Carolina homeowners can extend the terms of their mortgage at a lower interest rate. For example, going from a 15-year mortgage to a 30-year mortgage.

Reverse Mortgage: A reverse mortgage is another way to convert your equity into cash and is only available to homeowners over the age of 62. With this option, your lender sends you monthly payments that you are not required to pay back until you sell your home or until the property becomes vacant.

How to Use Your Refinancing Cash

The decision of how to use the cash you receive from your equity is entirely up to you, and there are no restrictions. Some common reasons for cash-out refinancing are:

  • Paying off debts, such as student loans, car loans or credit cards
  • Purchasing a new car
  • Upgrading or renovating your home
  • Buying a second home
  • Increasing your investment portfolio
  • Adding money to your retirement account
  • Starting a college fund

Ready to Get Started?

At Blue Water Mortgage, our experienced team has the knowledge and ability to help you navigate the refinancing process. We utilize a transparent approach to assess your current financial status, understand your goals and identify the right refinancing option for your unique needs.

As independent mortgage brokers, we have the advantage of working with multiple different lenders to shop around and find you the most competitive rates. You will benefit from our expertise and advocacy on your behalf, as well as our thorough understanding of the refinancing process. Plus, you’ll have peace of mind knowing that we are available 24/7 via phone to address any concerns or questions you might have.

To speak with one of our mortgage specialists today, contact us here. We are excited to start a conversation about how we can offer a solution to meet your goals!

Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.