4 Best Cash-Out Refinance Companies

Building equity in your home is a terrific feeling that often doesn’t become tangible until you sell. But you might be able to tap into that equity now without selling your home.

One way to do this is through a cash-out refinance. You’d refinance your mortgage for a higher amount than you originally borrowed, pay off your mortgage, and pocket the remaining cash. You can use this cash for home renovations, debt consolidation, or unexpected expenses. Below, we’ll review the four best cash-out refinance companies and explore how cash-out refinancing works.

Best cash-out mortgage refinance companies

A cash-out mortgage refinance can inject your bank account with much-needed funds for home renovations and repairs, debt consolidation, and other large expenses. But where should you start looking for one?

You may be tempted to refinance your mortgage with your current lender, but in doing so, you might be closing yourself off to better rates and lower fees elsewhere. Below, we’ve rounded up the four best cash-out mortgage refinance companies, chosen for their customer service, competitive rates and fees, leading technology, and transparent processes. If you’re on the hunt for the best cash-out refinance company, start your search with one of these lenders.

SoFi

Rocket Mortgage

Quicken Loans

Navy Federal Credit Union

What is a cash-out refinance?

A cash-out refinance is a type of mortgage refinance in which you borrow more than you owe on your mortgage. You’ll use the loan funds to pay off your current mortgage and then pocket the extra money for whatever you’d like, including:

• Home renovations, repairs, and maintenance
• Debt consolidation (paying off higher-interest student loans or credit card debt)
• Unexpected expenses, such as car repair or hospital bills
• Anything else, from weddings to vacations

Remember that after you get this cash, you have a brand-new loan, which could mean a new rate, a new monthly payment amount, and a new payoff timeline. It also means you’ll again owe closing costs, often 2% to 5% of the loan amount.

How does a cash-out refinance work?

A cash-out refinance requires that you’ve built at least some equity in your home—because your home has increased in value since purchasing or you’ve paid off a chunk of your mortgage—or both. Though it can vary, lenders generally require at least 20% equity in your home.

Cash-out refinance example 

So how much money can you get with a cash-out refinance? That depends on how much your home is worth—meaning you must pay for an appraisal. In most cases, lenders limit borrowing to 80% of the home’s value. You might hear this referred to the loan-to-value ratio (LTV).

For instance, let’s assume:

• Initial mortgage amount: $400,000
• Current mortgage balance: $270,000
• Home’s new appraised value: $550,000

Because you owe $270,000 on a house now valued at $550,000, you have more than the (typically) required 20% equity in your home. So a cash-out mortgage refinance company that will lend up to 80% of your home’s value might give you a mortgage for $440,000 (80% of $550,000).

You’d use $270,000 of that amount to pay off your current mortgage, leaving $170,000 in cash.

5 steps to get a cash-out refinance mortgage 

Here are the five basic steps to get a cash-out refinance:

1. Be sure you qualify: Lenders have strict rules about who qualifies for a cash-out refinance. (More on that below.) You’ll need sufficient equity in your home and a strong enough credit score. Because you’re taking on a larger mortgage, you should also use this time to make sure you can afford a higher monthly payment.
2. Shop around for lenders: This is an important step. Compare rates and fees with at least three of the best cash-out refinance companies (and your current lender) to see which can offer the best deal.
3. Get a home appraisal: To determine your home’s current value, a cash-out refi lender will require a home appraisal. You’ll pay out of pocket for this. On average, home appraisals cost about $400, according to Zillow. 
4. Work with the lender to determine the loan amount: Knowing your home’s current value and what you owe, the lender will be able to determine how much you can refinance for. The process will be similar to a traditional mortgage—including the closing costs you’ll pay.
5. Get funds: The lender will pay off your old mortgage with the new loan, and you’ll pocket the remaining cash (often through a wire transfer). You can begin spending that cash as you see fit, but remember to budget for your new monthly mortgage payment.

Cash-out refinance rules and requirements to know

Not everyone qualifies for a cash-out refinance. Here are several rules and requirements to consider.

Equity

Lender requirements will vary, but in general, you’ll need at least 20% equity in your home. This is required for conventional and FHA loans, but a VA cash-out refi may be available with less than 20% equity.

Credit score

Like a traditional mortgage, you’ll need at least decent credit to qualify for a cash-out refinance. Credit score requirements vary depending on the type of loan:

• FHA loans: You need at least a credit score of 500 for a cash-out refinance of an FHA loan, though lenders can set higher credit score requirements; it’s not uncommon for lenders to require 580 or even 600.
• VA loans: No minimum credit score requirement is mandated for VA cash-out refinance mortgages, but lenders can set their own requirements: 620 is a common benchmark.
• Conventional loans: To refinance a conventional mortgage, you’ll need at least a 620 credit score.

Debt-to-income ratio

Lenders also want to see a low debt-to-income ratio (DTI) when refinancing mortgages. For most cash-out refinances, you’ll need a DTI of 43% or lower. That said, some programs, such as FHA and VA, may allow a DTI as high as 50%.

Closing costs

Many homeowners turn to cash-out refinances because they need help with emergency expenses or consolidating large debts. But don’t forget to account for closing costs, which can range from 2% to 5% of the total cash-out refi amount.

How to get the best cash-out refinance rates

Does a cash-out refinance make sense for you? Here are our tips to get the best interest rates for your mortgage refinance:

Shop around

The No. 1 mistake you can make when getting a cash-out refinance is going with the first lender you find. Take the time to review at least three lenders to see where you can get the lowest rates and fees.

Improve your credit score

You may qualify for a cash-out refinance with a credit score as low as 600, but you’ll likely pay a much higher interest rate. If you can wait six months to a year before refinancing, use that time to work on improving your credit score. Make on-time bill payments, pay down credit card debt, and stop using your credit cards unless you’ll pay them off in full each month.

Borrow less

The higher your loan-to-value ratio, the higher the interest rate you’ll typically pay for a cash-out refinance mortgage. Take the time to calculate how much cash you need, and don’t borrow a cent more. Remember: Just because you’re approved for a larger mortgage doesn’t mean you must borrow that much.

Wait for rates to go down

No matter how strong your credit score is, interest rates only fluctuate so much. It’s always a gamble, but you can play the waiting game to see whether they’ll decrease within the next year or two. Keep in mind that it’s also possible rates will go up over time—it’s a roll of the die to wait!

Our expert’s advice

Erin Kinkade

CFP®

Depending on your reason for considering a cash-out refinance, I suggest waiting. This can allow time for rates to go down. If you need the cash-out refinance now, you could consider an adjustable-rate mortgage, which could help curtail the cost of the present interest rates to future lower rates—but again, this is a gamble. 

Cash-out refinancing pros and cons

A cash-out refinance mortgage offers several advantages, but be aware of the downsides too.

Pros

• Make the most of your equity

  A cash-out refinance lets you use the equity you’ve built in your home to pay for major home renovations, pay down higher-interest debt, or fund other large expenses.

• Get a lower rate

  Another reason to refinance your mortgage—with or without the cash-out—is to take advantage of a lower interest rate. If your current mortgage has a higher rate, this could save you significant money in the long run.

• Predictable rate

  A common alternative to a cash-out refinance is a home equity line of credit (HELOC). While these have many benefits, they often come with variable interest rates, which can make payments less predictable.

Cons

• Closing costs

  You already paid closing costs when you first secured your mortgage. To refinance it, you’ll pay closing costs again. These can range from 2% to 5% of the loan amount.

• More debt

  By the nature of a cash-out refi, you’re trading in your current mortgage for a larger one. That increases your overall debt, which is risky.

• Timing

  Cash-out refinancing is a terrific way to access funds, but like closing on a new home, it can take several weeks. If you need money for emergency expenses, your best bet might be a personal loan or credit card.

Read More

Cash-Out Refinance vs. Home Equity Loan

FAQ

Is refinancing with cash out a good idea?

Refinancing with cash out can work well if you need to access a significant amount of money for expenses such as home improvements, debt consolidation, or major purchases. It can also be beneficial if you can secure a lower interest rate than your current mortgage. 

However, it’s important to consider the long-term implications, such as extending the term of your loan and increasing your monthly payments. Evaluating your financial situation and goals is crucial before deciding whether a cash-out refinance is right for you.

Does cash-out refinancing hurt your credit?

Cash-out refinancing can have an impact on your credit score. Applying for a refinance involves a hard credit inquiry, which can cause a slight dip in your score. Taking on a larger loan amount could affect your credit utilization ratio. 

However, using the cash to pay off high-interest debts could improve your credit score over time. To mitigate any negative effects, it’s important to manage your credit responsibly and make on-time payments on your new loan.

How is a cash-out refinance paid back?

You repay a cash-out refinance similar to a traditional mortgage. You will have a new loan with a principal and interest you’ll repay over a specified term, typically 15 to 30 years. 

Your monthly payments will include principal and interest, and you may also have an escrow account for property taxes and homeowners insurance. It’s essential to budget for these payments and understand the terms of your new mortgage to ensure you can meet your financial obligations.

Is it hard to get approved for a cash-out refinance?

Getting approved for a cash-out refinance can be more challenging than a traditional refinance because lenders require sufficient equity in your home and a good credit profile. Lenders typically look for a minimum credit score, a stable income, and a debt-to-income ratio that meets their criteria. 

You also need sufficient equity in your home, often at least 20%, to qualify for a cash-out refinance. Preparing your financial documents and improving your credit score can enhance your chances of approval.

How much equity do I need for a cash-out refinance?

Most lenders require at least 20% equity in your home for a cash-out refinance, so your LTV should be 80% or lower after taking out the new loan. 

For example, if your home is worth $300,000, you should owe no more than $240,000 on your mortgage to qualify for a cash-out refinance. Having more equity can also help you secure better terms and interest rates. It’s important to get your home appraised and understand your current mortgage balance to determine your eligibility.

How we chose the best cash-out refi companies

Since 2019, LendEDU has evaluated mortgage companies to help readers find the best mortgages. Our latest analysis reviewed 228 data points from 12 lenders and financial institutions, with 19 data points collected from each. This information is gathered from company websites, online applications, public disclosures, customer reviews, and direct communication with company representatives.

These star ratings help us determine which companies are best for different situations. We don’t believe two companies can be the best for the same purpose, so we only show each best-for designation once.

Recap of the best cash-out refi companies