Can You Use a Cash Out Refinance to Buy a House?

You can use the withdrawn money from a cash out refinance to make a down payment on a second home or investment property. Withdrawing cash to buy a second home or investment property is a quick process that can help you close faster. If you have already purchased a second property with your own funds, you can use a cash refinance loan to renovate it. A cash-out refinance of an investment property can offer favorable loan terms, tax benefits, and a speed that allows you to move quickly on a deal.

However, it's important to understand that a cash-out refinance will reset your mortgage clock and significantly increase your monthly mortgage cost. Many homeowners use cash-out refinances to get the funds they need for a down payment on a new property or to buy a new home with cash if they have enough capital. Keep in mind that using a cash-out refinance to purchase a second home or investment property will incur closing costs. These are the lender and third party fees that are paid at closing (loan origination fee, title search fees, attorney's fees, prepaid fees).

Closing costs can range from 2% to 5% of the loan amount. When you go to real estate, a cash-out refinance can save you thousands of dollars more than trying to borrow that same money elsewhere. When approving a cash out refinance for an investment property, lenders may want to see between two and six percent of the loan amount in a separate asset account. If you've owned a home or thought about owning a home, you've probably heard of the concept of cash out refinancing. A cash-out refinance is just one way to leverage the net worth of a property, another option is through a home equity line of credit (HELOC).

As soon as you close the cash back, you can use those funds as a down payment on another home or to purchase the home directly if you plan to keep the current home as your primary residence. These loans allow you to refinance up to 100% of the value of your home, but they have stricter eligibility standards. If the investor is using a cash out refinance on a principal property that is still under a mortgage, financing a second home can cause them to lose both if they fall behind in their loan payments. Withdrawing capital from one property to secure the purchase of a second is a viable option for the investor who approaches the situation with care. Always research and compare rates with several lenders before deciding to opt for a cashout refinance.

When contacting your mortgage lender about a cash out refund, there are a few important things you'll need to think about first. A USDA refinance may require a waiting period of six to 12 months, and USDA loans never allow cash to be withdrawn. You can avoid the cash-out refinance waiting period if you inherited the property, the property was adjudicated due to divorce or legal separation, or if cash-out refinancing qualifies for the delayed financing exception. While the decision to refinance shouldn't be taken lightly, this is an excellent option for those looking to secure funds quickly.

Miriam Rosebrook
Miriam Rosebrook

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