Using a Cash-Out Refinance to Buy a Second Home: A Good Idea? - Credible News

A cash-out refinance can help you buy a second home while also reducing the interest rate on your existing home loan.
Josh Patoka

Josh Patoka is a personal finance authority and a contributor to Credible. His work has been published on Fox Business and several award-winning personal finance blogs including Well Kept Wallet, Wallet Hacks, and Frugal Rules.

Read more” > Josh Patoka Edited by <a href="https://www.credible.com/blog/author/cjennings/" class="entry-meta__tooltip" data-tooltipjs="" data-tooltipjs-hover="true" data-tooltipjs-placement="top" data-tooltipjs-close-on-outside-click="true" data-tooltipjs-title="Credible’s editing process includes rigorous fact-checking by experts to ensure that all content is accurate and up-to-date. This article has been reviewed, edited, and fact-checked by Chris Jennings. As a Credible authority on mortgages, Chris covers topics including home loans and mortgage refinancing. His work has appeared in Fox Business and GOBankingRates.Read more” > Chris Jennings Updated September 2, 2021
Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”
Many people want a second place to use as their dream retirement home, a vacation home, or an investment property. Utilizing a cash-out refinance can help you afford the down payment on a second home — and you might be able to lower the interest rate on your existing mortgage too.
Here’s what you need to know about using a cash-out refinance to purchase another home:

Cash-out refinancing lets you access the equity in your home by replacing your first mortgage with a larger mortgage. You’ll pay off your new mortgage and receive the difference in cash. A popular strategy among homeowners is to use this lump sum to fund the down payment for a second home.
In general, you can cash-out up to 80% of your home equity minus the current loan balance. The one exception is a VA cash-out refinance loan. These loans let you refinance up to 100% of the value of your home, but they have stricter eligibility standards.
Now, say you want to make an $80,000 down payment on a second home. You’ll take out a cash-out refinance loan worth $180,000 — $100,000 will pay off your existing mortgage, and you’ll pocket the remaining $80,000 for the down payment.
Keep in mind, the lender will also deduct closing costs from the cash-out amount. The average fees are between 2% and 5% of the loan amount similar to a traditional refinance or a new home loan.
Always shop around and compare rates with multiple lenders before you decide to go with a cash-out refinance. You can do this easily with Credible. With Credible, you’ll be able to see actual prequalified rates in only three minutes.
Find My Loan
No annoying calls or emails from lenders!


In addition to positive home equity, lenders have minimum borrower qualifications.
You can set yourself up to qualify for a cash-out refi by meeting these basic requirements:
You must also use your funds for an eligible reason like buying a second home to use as a rental property or vacation home.

There are several advantages of choosing a cash-out refinance to buy a second home, including potentially lower rates and tax advantages:
Find out: Mortgage Refinance Tax Deductions Every Homeowner Should Know

Some of the drawbacks when you refinance to buy a second home include using your home as collateral and potentially paying more in closing costs:
Check out: Should You Get a Cash-Out Refinance to Invest?

Refinancing your mortgage to buy a second home may not be the best option if you don’t qualify for lower mortgage rates or you want more flexible repayment terms.
If it’s not the best for you, lenders also offer additional options to utilize your home equity.
Best if: You need a lump-sum payment but don’t want to refinance your first mortgage.
A home equity loan is similar to a cash-out refinance as you get a lump-sum payment for up to 85% of your current equity. The closing costs and repayment options are similar too.
Home equity loans can be the better option in these instances:
Best if: You want to make multiple withdrawals and get a potentially lower variable interest rate.
A home equity line of credit can be a better option if you don’t want to take out a big chunk of your home equity at once. Over the loan’s draw period, you can make withdrawals as needed up to your credit limit. Once the draw period is over, you’ll pay back what you borrowed.
Here are several key traits of a home equity line of credit:
A HELOC is one of the most flexible ways to use your home equity. However, you must be comfortable with a variable interest rate — or find a lender that offers a fixed-rate option.
Learn More: Home Equity Loan vs. Home Equity Line of Credit
Josh Patoka is a personal finance authority and a contributor to Credible. His work has been published on Fox Business and several award-winning personal finance blogs including Well Kept Wallet, Wallet Hacks, and Frugal Rules.
Home » All » Mortgages » Using a Cash-Out Refinance to Buy a Second Home: A Good Idea?
window.credibleAsyncInit = function() {
CredibleSDK.initWidget(‘#mortgage-combined-rate-widget-simple’, {
environment: ‘production’,
product: {
marketplace: ‘mortgage-combined’,
type: ‘rate-widget’,
variation: ‘simple’,
},
analytics: {
source: ‘credible_blog’,
},
});
};

Uses for Cash-Out Refinancing
Tools and Resources
Mortgage Refinance, Mortgages

Mortgages, Mortgage Refinance

Mortgages, Mortgage Refinance

© 2021 Credible
Credible Operations, Inc. NMLS ID# 1681276 | NMLS Consumer Access | Licenses and Disclosures
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

source

Leave a Reply

Your email address will not be published.