Real estate investors often need additional capital to expand their portfolio or renovate existing properties. One of the most effective ways to access that capital is through a cash out loan. This type of refinancing allows you to convert your home equity into cash while benefiting from mortgage-backed interest rates that are typically lower than those of personal or business loans.
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What Is a Cash Out Loan?
A cash out loan, also known as a cash-out refinance, replaces your current mortgage with a new, larger one. The new loan pays off your existing mortgage, and you receive the difference in cash.
If your property is worth $400,000 and your current mortgage balance is $220,000, you could refinance up to 80% of the property’s value ($320,000). This would give you about $100,000 in available cash, minus closing costs.
You can use this lump sum to purchase another property, renovate your current one, or consolidate debt while maintaining a competitive mortgage rate.
How to Qualify for a Cash Out Refinance
To qualify for a cash-out refinance, lenders usually look for:
- At least 20% equity remaining after refinancing
- A good credit score, which helps you access better interest rates
- Proof of income, such as W-2s, pay stubs, rental income, or bank statements
- A solid mortgage payment history, with no major late payments in the past year
Meeting these criteria improves your chances of approval and helps you secure more favorable loan terms.
Cash Out Refinance vs. Home Equity Loan
Both a cash-out refinance and a home equity loan allow you to access the value of your home, but they work differently.
Feature | Cash Out Refinance | Home Equity Loan |
Loan Type | Replaces your existing mortgage with a new, larger one | Adds a second mortgage on top of your current loan |
Monthly Payments | Single payment, often with a lower rate | Two payments: original mortgage and equity loan |
Closing Costs | Higher, typically between 2% and 6% of the loan amount | Lower, often limited to processing and appraisal fees |
Best For | Large expenses, property purchases, or major renovations | Smaller sums or maintaining a low first-mortgage rate |
When Does a Cash Out Refinance Make Sense for Investors?
A cash-out refinance can be a smart move when you need substantial capital for your next property purchase, when your current mortgage rate is higher than current market rates, or when you prefer managing one monthly payment instead of two.
A home equity loan may make more sense if you already have a low first-mortgage rate and only need a smaller amount of funds.
Pros and Cons of a Cash Out Loan
Pros
- Access to significant cash for investments
- Lower interest rates compared to unsecured loans
- One consolidated mortgage payment
- Flexible use of funds for new purchases, renovations, or debt management
Cons
- Higher closing costs compared to home equity loans
- Longer repayment term
- Requires solid credit and sufficient equity
Is a Cash Out Loan Right for You
Both cash out loans and home equity loans are valuable tools for real estate investors. The best choice depends on your goals and financial situation.
If you want to access capital for your next investment property and prefer the simplicity of one mortgage payment, a cash-out refinance could be the right solution.
At USA Loans, we offer customized financing options for investors, including cash-out refinances and investment property loans.
Ready to leverage your home equity and grow your portfolio? Contact the USA Loans team today to explore your refinancing options.
Do you need help with your mortgage loan?
We are ready to help you. Call us at: (703) 890-1356 or Spanish 1-(800) 485-0102, if you prefer, register to contact you.