When you buy a home, you gain more than a place to live. A house is an investment and wealth-building tool, and in time, you can use it to access cash for large expenditures through a cash-out refinance.

As Houston’s top mortgage broker, our team at Champions Mortgage helps homeowners get the most from their homes. If you need cash for home improvements, college tuition, or any other large expense, a cash-out refinance on your home could be the answer. Here, we explain what it is, how to apply for one, and answer, “How long does a cash-out refinance take?”

The Basics of a Cash-Out Refinance 

A cash-out refinance is a type of home mortgage that allows you to use the equity in your home to access additional cash. It involves replacing an existing home mortgage with a new loan for more than what you owe on the property. You pay off the original mortgage using the new loan and then pocket any additional funds to use however you wish. 

The key to a cash-out refinance is having substantial equity in the property. Equity is the paid mortgage or how much of the home you own. As you pay the mortgage and the home gains value, you earn equity. 

For example, if you borrowed $200,000 15 years ago and owe $100,000 to the bank now, you have $100,000 in equity. However, over the last decade and a half, your home value increased, so it’s now worth $400,000. Choosing a cash-out refinance means you can potentially take out a new loan for up to 80% of your home’s value ($320,000), pay off the mortgage balance of $100,000, and pocket the remaining $220,000.

Many homeowners choose to refinance their homes for a lower interest rate, which can save money over the life of the loan. Refinancing often results in lower monthly payments and better loan terms, especially for buyers with a better credit score and now qualify for more competitive mortgages.

Applying for a Cash-Out Refinance 

How much you can get in a cash-out refinance depends on the value of the property and the type of loan you have. Most lenders only allow borrowers to access up to 80% of their home value; the major exception is a VA cash-out loan, which allows a cash-out refinance for 100% of the property value.

Government-backed VA and FHA loans also require borrowers to wait before refinancing. VA loans require 12 months of on-time payments, while FHA borrowers have to wait at least 210 days to refinance. 

So, how long does a cash-out refinance take? For most homeowners, the process takes 45 to 60 days from start to finish and requires completing several steps, including:

Pre-Approval

Pre-approval tells lenders that you’re creditworthy and qualify for a loan. Much like when you shop for a home, pre-approval tells lenders you’re serious and can repay a loan. Seeking pre-approval also gives you an idea of the interest rate you qualify for; typically, the higher your credit score, the lower the interest rate on the loan.

Shop for Loans

Once you have pre-approval, you can shop lenders to find the one that offers the best loan terms.

Apply for Loans 

After choosing a lender, you’ll submit a formal application for the refinance loan. Expect to confirm the information you gave the bank during pre-approval and provide additional details about your income, debts, employment, and home. The bank will require documentation to support your claims, including:

• Pay stubs showing a minimum of 30 days of income
• W-2/s for two years of employment or two years of tax returns if you’re self-employed
• Proof of additional income
• Two months of bank statements 
• Information about your employer
• Proof of homeowner’s insurance 
• Letters of explanation for employment gaps, credit issues, or other concerns related to your application 

Most lenders require a minimum credit score of 620 for any home loan. Some lenders have even more stringent requirements. 

Arrange an Appraisal 

One of the most significant factors when answering “How long does a cash-out refinance take?” is the home appraisal. During this process, an independent professional inspects your home and compares it to comparable properties in your neighborhood, recent sales, and the overall market to determine its value and whether you can borrow your desired amount. Depending on the market, it may take up to a month or longer for this to occur. 

If you have an excellent credit score, the bank may issue an appraisal waiver, which uses information in the underwriting system to determine the home’s value and speed up the process.

Sometimes, the appraisal is much less than expected, or the appraiser feels the neighborhood is declining. If this happens, you won’t get as much cash from refinancing. 

Underwriting 

Once the bank has all the information it needs, the application goes to underwriting. During this process, homeowners may need to submit additional documentation to support their application. As soon as everything is clear and the underwriters approve the loan, they’ll set a closing date. 

Closing

The closing on a refinance is similar to the closing on your original home loan. As such, you can expect to pay closing costs of 2% to 5% of the loan value. 

Understanding the Rescission Period 

Another factor to consider is the mandatory rescission period after closing. While you left your original mortgage closing with the keys to your new home, you won’t leave the refinance closing with cash. These loans have a three-day rescission period, during which you can change your mind, cancel the refinance loan, or keep your original mortgage.

Some lenders allow borrowers to waive the rescission period if they need emergency funding. 

Turn to the Cash-Out Refinance Experts for Help 

If you want to turn the equity in your home into cash to pay off debts, make improvements, or handle financial hardships, get in touch with our experts at Champions Mortgage at (281) 727-2500 to know how soon you can refinance a house after buying it. Our home refinancing experts can assist you with all types of mortgages and answer your questions, including “How long does a cash-out refinance take?” and more.