Cash Out Refinance on Your Investment Property

Cash Out

TwinCity Lending can help you WIN at investment property ownership with a cash-out refinance loan

Cash Out

Congratulations on doing a little winning at life, all of you investment property owners out there!  We at TwinCity Lending know it frequently takes a lot of blood, sweat, and tears to make investment property ownership a reality. Regardless of how you came into ownership of this type of home or building, we want to make sure you know how to keep growing your footprint as a landlord or keep your investment property in tip-top shape with our cash out refinance options.

What is a Cash-Out Refinance Loan?

Very simply stated, a cash-out refinance is a way to unlock the cash you have sitting in equity in your investment property. If you have 30-40% of your existing investment loan paid off, or if your property has gone up significantly in value in the last several years, you may want to consider taking out a new loan at a higher principle than your existing mortgage. Then, you can use the difference as cash-on-hand for any number of growth or maintenance objectives.

For example, let’s say your property’s fair market value amount is $175,000.00. For a cash-out refinance loan to make sense as an investor, your principal loan balance needs to be $122,500.00 or lower (loan-to-value). We arrive at this total by the equation:

($175,000.00 Fair Market Value) x (.75 Loan-to-Value) = 122,500.00

Once you complete your cash-out finance loan, you can take the amount of the cash-out loan and pay off the existing mortgage ($122,500.00) and then have $52,500.00 left over to spend!

How do I manage the risk of a cash-out refinance loan?

Refinance

Remember,  you still will have a “mortgage” on the first property that you will pay down incrementally after your cash-out refinance. Further, the principle will be a bit higher than your original loan because you are trying to “liquify” your property’s equity. It is paramount to have a long look at both your existing financial resources and your growth and investment goals before you make this decision.

For example, if you have a great deal of experience flipping properties and have had successful renovating and selling experiences in the past, a cash-out refinance may feel like a reasonable risk.

Also, if you have reliable renters in place and a solid lease on an existing property that can place you in more confidence as you refinance with cash out. If you believe that renovating your property will cement your renter relationship for a long time to come or make the property more attractive to potential renters, the risk of refinancing may seem like a safer bet.

In any case, it is always wise to cover your “risk” bases before moving forward on any refinance.  If the refinance is to serve as a “band-aid” for a more significant financial issue, it may be a good idea to put the decision on hold until you feel more comfortable with the risk you are assuming in this transaction.

Who can benefit from a cash-out refinance loan?

Investment property owners with a minimum of 30% equity in their property stand to gain the most “flexibility” from this type of loan. Property owners with less than 30% equity may also be able to use a cash-out refinance loan to lock in a lower interest rate, saving hundreds or even thousands of dollars in interest payments over the life of the loan.

Are you one of the following people? If so, a cash-out refinance loan could be a smart way to grow your portfolio:

  • Short-term flippers or fixers: You are looking to buy a house, fix it, and sell it at a profit
  • Long-term buyers and holders: You want to buy a house and keep it, typically with an all-cash offer or big cash down payment.
  • Long-term buyers and holders: You already own a property but need to repair or update it.

How can I use my “liquid” equity?

Equity

Technically, you could use the money for whatever you want, like a vacation or a new car.  However, savvy investment property owners will often spend their liquid equity on one or more of the following:

  • A down-payment on another investment property
  • Improvements to an existing property, which may increase the property’s market value or enable the owner to increase lease revenues
  • Costs of “flipping” investment properties for higher potential return on investment

The key with using the money from this type of loan is to grow as an owner in some way, either by improving your current property or by adding more properties to your portfolio for lease or “flipping” potential.

How do I start my cash-out refinance loan process?

At TwinCity Lending, we want to make all your loan applications as simple as possible. We have mortgage calculators on our website, and convenient appointments available to answer all your questions. Schedule one here whenever you like!

Before your appointment, please know that you will need to meet a few requirements before beginning the refinance process. Qualifying credit score, fees, closing costs, and other loan terms are all part of the application process. Checking in regularly on your credit score is good general practice, and can help you avoid and credit score “surprises” when applying for cash-out refinance.

Lender fees up to 3% of the loan amount and closing costs and up to 5% of the loan amount are also part of the overall loan process, so factor that into the amount of cash you want to take home from the transaction.

How will I receive my money from a cash-out refinance?

Typically, it takes between 30-45 days for approval on your cash-out refinance application.  Once approved, the payout can usually occur within three days. The cash transaction is made through wire transfer, first to the original lender to pay off the original mortgage, and then the remainder is wired to your bank account. Instead of a wire transfer, the title company will issue the funds with a certified check.

Thank you for trusting TwinCity Lending with your investment property cash-out refinance!  We are proud to help local investors grow their financial impact and investing power with our professional and stress-free service. Call TwinCity Lending today to begin your application.  We’ve got this. After all, helping you grow YOUR business interests is at the very heart of OUR business interest.

Using Your Home Equity to Reduce Your Debt

Debt Management

Debt Management

Sometimes life happens. When you least expect it, a financial need arises that can leave you and your family scrambling. Or perhaps you desperately want to pay down your existing debt. While there are many options to borrow money, some are more costly than they are worth.

If you’re a homeowner, one option at your disposal is a home equity loan. While loans, in general, can be tricky, a home equity loan is an excellent option for many circumstances.

If you are interested in using a home equity loan, call the knowledgeable professionals at TwinCity Lending. We have years of experience working with a variety of customers. We work hard to keep overhead costs down so that we can pass the savings on to you.

What is a Home Equity Loan?

home equity loan, also called a second mortgage or a home equity installment loan, is a way to borrow against the portion of your home’s value that you own. Your available home equity is the difference between the total value of your home and how much you still owe. A homeowner builds equity in their home by making payments on their mortgage, improving the home, and keeping the house as it increases in value.

Homeowners can use home equity loans for many things. Whether you want to remodel part of your house, pay down debts, such as credit cards or student loans, or to make another large purchase, like a car, a home equity loan provides you with available capital. Interest on a home equity loan may be tax-deductible, as well, depending on your circumstances.

Reasons to Use a Home Equity Loan

Shopping Bill

Home equity loans are a fantastic way to obtain money at an affordable interest rate. Many people wonder if you can use a home equity loan for any purpose. The answer is generally yes, but you should take care when borrowing against your home’s equity. Overuse of this type of loan was a leading factor in the Great Recession.

Consolidate Debt

A common reason to take out a home equity loan is to consolidate debt, particularly high-interest debt. Many homeowners still have a significant amount of student loans they are still paying off, or maybe have built up credit card debt. Frequently, these rates can be very high, up to 15-28%.

If you use a home equity loan, you could save yourself thousands of dollars in interest and use those savings to pay down the principal amount. Even though home equity loans typically come with a higher rate than your initial mortgage, they are usually less than double-digit rates attached to credit card debt.

Home Improvements

Another common reason to take out a home equity loan is to make improvements that add value to your home. The increase in your home’s value tends to help you recoup a significant portion of the initial investment in the home improvement.

For example, a reasonable kitchen remodel in line with the value of the home can return about 70% of the investment in the increased value of the house. Upgrading your home’s exterior can add almost 80% of the cost back to your home. Using a home equity loan to make energy-efficient updates to your home will not only add value but also save you money on utilities and, in some cases, give you a tax break

Emergency Expenses

Another common reason to use a home equity loan is for an unforeseen expense. Many families don’t plan for substantial medical costs, job loss, or other situations that require a large amount of capital at once. A home equity loan can give you a significant amount of money to pay for these unexpected events and provide you with peace of mind.

How does a Home Equity Loan Work?

Buy House

You might be wondering how a home equity loan works. You know you can use this loan for several different things, but how? Similar to a first mortgage, a home equity loan is for a specific amount and a fixed rate that is scheduled to be paid back over time. The borrower will get a lump-sum amount with an agreement to make regular payments for a specific time period.

The amount for the loan depends on how much of your mortgage is paid off. The lender will divide the total amount you have left to pay on your mortgage by the value of the property. This amount is the loan-to-value ratio, and generally, lenders want this ratio not to exceed 90% after the new loan is factored in.

To put it in practical terms, if you own a home that is worth $400,000 and you have $200,000 left to pay in your mortgage, you have $200,000 in home equity. If you wanted a lump sum of $100,000, that would be a 75% loan-to-value ratio.

Tips for Home Equity Loans

Use The Money Wisely

While it may be tempting to take out a home equity loan to purchase a nice car, or to complete substantial improvements to your home, you need to be wary of how much you spend. Do not make a large purchase you can’t afford. This may mean using the loan to purchase a reasonable car, rather than a luxury one.

Also, don’t make home improvements you will not recoup when you sell. If you invest $80,000 into a kitchen in a $250,000 home, you will not get that investment back because potential buyers won’t want to spend that much on an updated kitchen that doesn’t match the rest of the house.

Be Aware of Fraud

As with anything in life, there is a potential for fraud with home equity loans. Do not fall for a scam. If the offer seems too good to be true, it might be. The best option is to seek out a reputable mortgage lender, rather than falling for a television ad. Look up the company with the Better Business Bureau, or read their Google reviews.

Thoroughly read through all documents before you sign anything. It is perfectly acceptable to have an attorney read through legal documents before signing. Disreputable lenders have manipulated people into signing over the rights to their house without realizing it.

Call TwinCity Lending Today

If you are interested in a home equity loan, give TwinCity Lending a call today. We specialize in low-interest loans, especially for borrowers with good to excellent credit. Our goal is simple: keep overhead costs down and save our clients money. Find out how we can serve you and your borrowing needs.

Helping Veterans Get homes: Understanding the VA Home Loan

Buy Home

VA Loan

If you’re a veteran of any of the branches of military service in the US, then you deserve thanks for your years of service to the nation and your willingness to protect our country. You also deserve to capture the dream of home-ownership, and there are several programs in place to ensure that veterans can obtain the home loan they deserve.

At TwinCity Lending, we are proud to have helped many veterans buy a home. We are knowledgeable about the many incentives and programs that will help you get there. Give us a call today, and we will get you qualified for a veterans administration home loan and soon you’ll be flying your flag over the roof of your own home.

What Are VA Loans?

The Department of Veteran’s Affairs guarantees loans to US veterans, but it does not lend the money itself. You can obtain your mortgage through any lender who specializes in VA loans, such as TwinCity Lending. You may have heard of Veterans United Home Loans, which is a mortgage lender who only does loans for vets. While they offer excellent service to help vets buy homes, you can instead choose the lender you prefer to work with for your VA mortgage loan.

There are several benefits to being able to utilize a VA Loan. Most notably, you do not need a down payment to buy a home.

Also, unlike other mortgages which require and charge Primary Mortgage Insurance (PMI) to borrowers who have less than 80 percent equity in the house, VA loans have no PMI. This benefit saves you substantial money every month.

There are no limits to the amount you can borrow with a VA loan, and they have more lenient income, credit, and debt ratio requirements than conventional loans. Plus, they generally have significantly lower interest rates, which saves you more money over the life of your loan and let you potentially pay down your principal more quickly.

Also Read: First Time Home Buyer Grants: What They Are and How to Get One

You can only use VA loans for your primary residence, so you cannot use them to finance a vacation home or a rental property. The benefit is renewable, however, so just because you used a VA loan to purchase a home before doesn’t mean you can’t get another VA loan when you relocate. You can even buy a duplex or multi-unit property with your VA loan and rent them out, as long as you live in one of the units.

How to Get a VA Loan

Buy Home

You need a Certificate of Eligibility (COE) to apply for a VA loan. You are eligible for a COE if you meet one of these conditions:

  • You served 90 consecutive days of active service during wartime;
  • You accumulated 181 days of active service during peacetime;
  • You have been an active member of the National Guard or Reserves for six years or more, or you were called to active duty and served 181 days of active service;
  • You were married to a service member who died in the line of duty or as a result of a service-related disability.

The COE doesn’t mean you will automatically qualify for a VA loan, but it’s the first step. Take your COE to your mortgage lender who offers VA loans, such as TwinCity Lending, and one of their representatives will walk you through the qualification process. You will still need to meet standards for income, credit score, and debt ratios but remember that these are easier to obtain with VA loans than they are for conventional loans.

Qualifying for a VA Loan

You’ll remember that there is no down payment required for a VA loan, but you are welcome to put money down to reduce the amount you are financing. Doing so can lower your monthly payment or allow you to qualify for a house with a higher sales price.

The amount of your down payment also affects your VA Funding Fee. Generally, a higher down payment lowers your fee, as the fee is there to help pay for the program and its risks. Your fee is lower if you make a down payment because your loan is less risky than others.

Let’s examine the VA Funding Fee for a moment. You’ll recall that we said above that VA loans do not require a down payment, nor do they have Private Mortgage Insurance (PMI) that is paid monthly until your loan reaches at least 80 percent of the value of your home. Both of these benefits are substantial and make home buying easier for veterans.

VA loan isn’t wholly without fees, however. All VA loans have a VA Funding Fee, which is assessed when your loan closes. This fee goes directly to the Department of Veteran’s Affairs for the administration of the program, and your mortgage lender cannot waive or alter the funding fee.

You can find the amount of your funding fee on your Certificate of Eligibility (COE) that you get from the VA. The amount you must pay will depend on whether you were active duty or in the Guard, and whether you are using the VA loan benefit for the first time, or subsequently, or for a purchase or a refinance.

Don’t worry though. Just because this fee is due at closing and is required to obtain your loan doesn’t mean that you have to come up with thousands of dollars to purchase a home.  You can ask the seller of the property you wish to purchase to pay the fee on your behalf at closing, or you can also roll the cost of the fee into your loan and pay it over time. Your mortgage lender can walk you through this decision and work with you to determine the best option.

TwinCity Lending is Here to Help Veterans Buy A Home

If you’re a veteran looking to buy a home, the experts at TwinCity Lending are here to help. We understand the VA loan program and can walk you through your credits to determine how much home you can afford. Bring your COE, and we will get you pre-qualified for a loan so that you can go shopping for your dream home. We’re proud to serve our veterans and stand ready to make your journey to home-ownership easier than you would expect. Give us a call today and let us help you get started.