100% mortgage refinancing allows you to borrow against your equity, while hopefully lowering your interest rates. To get approved for a cash out refinance, you need to have excellent credit. Otherwise, you need to work with a sub-prime lender or apply for a line of credit.
What 100% Refinanced Mortgage Can Do
A 100% refinanced mortgage can allow you to take out all of your home’s equity. Anytime you cash out part of your equity, your refinance rates will increase. But rates will be lower than if you take out a second mortgage.
However, with no equity, you will need to carry private mortgage insurance. But if you choose a sub-prime lender, you don’t have to worry about paying premiums.
Improving Your Application
Lenders are primarily concerned that you can repay the loan. Without equity, lenders look at other factors, such as income, cash assets, and credit history. Income is important when it is compared to your debt ratio. Other debts, including credit cards and student loans, decreases your borrowing power. So if possible eliminate or reduce your debt.
In the case of job loss or other financial emergencies, lenders want some reassurance that you can handle monthly payments. That is why cash assets, which also include CDs and money market accounts, are important. Six months of savings is a good start.
Your credit history predicts how likely you are to skip payments. But even if you don’t have perfect credit, you can find 100% financing with a sub-prime lender. They will also be more lenient with your application, but charge slightly higher rates.
Getting Better Terms
Be prepared to pay at least 3% at the time of closing for your refinancing. Otherwise, those cost will be rolled into your new mortgage and you will be paying additional interest on that money.
You will also want to research loan offers before making a final decision. By researching loans, you can know you are getting the best deal. Don’t just focus on rates; take a look at closing costs as well. Remember too that you may find a better deal by taking out a second mortgage to access your equity.