A cash out refinance has become a popular way to tap into your home’s equity in recent years. In fact, more than 50% of homeowners used this method in 2017, according to a report conducted by Black Knight Financial Services. The process of getting approved for a cash out refinance tends to be faster than a HELOC or home equity loan, but how long does it actually take?
If you ask a loan officer, they’ll most likely say anywhere from 30 to 45 days. While this is generally true, there are plenty of instances where it can take much longer. Read below to understand the factors that affect approval times for a cash-out refinance.
What Affects Approval Time
Getting approved for a cash-out refinance is largely dependent on how quickly you can verify your personal information and the speed at which the lender decides to move. The initial application process is fairly simple and can be done in a few minutes or done online. After that, you’ll need to provide documentation such as your income history and information pertaining to the home’s value. Any delays in responding to requests for clarification or even setting up an appraisal appointment will mean a longer approval time.
Eric Rosenberg, a former bank manager, mentions that you can help speed up the process by being proactive with your paperwork. “It’s usually a little detail like a forgotten letter or statement that slows things down,” he says. “If you provide all required documentation alongside your application, you can expect a smoother process overall.”
Approval time can also depend on your financial situation, such as your credit history and how much home equity you have. The higher your credit score, the more likely you’ll be approved faster than someone with a fair score. Your credit history will also be taken into consideration, so if yours is less than stellar, it could mean approval time could be delayed or you might be rejected.
It’s always a good idea to gather all necessary documentation before you apply. That way, not only can you speed up the process, you can also check to see if you can even afford a loan in the first place.
What You Need to Apply
Most lenders will ask that you provide the following in order to apply for a cash-out refinance:
Homeownership Documents – Lenders will want to verify that you own the property. They may ask for proof of title insurance, so that they can check property taxes paid and who owns the title. Other documents a lender may look for are proof of insurance and mortgage statements.
Proof of Income – You’ll typically need to provide documents such as your pay stubs and current tax forms such as a W2 and 1099. A lender may even ask for bank statements and proof of additional income such as rental income and other types of investments. If you own a business, it’s a good idea to provide documentation such as balance sheets and additional tax returns.
Monthly Debt Load – Even though a lender will be able to see your credit history during a credit check, you’ll still need to provide details. These documents can include statements for student loans, auto loans, credit cards, and any second mortgage loans. Lenders use this information to calculate what’s known as debt-to-income, which is a number that determines how well you handle your debt payments. All this to say the more loans you have, the more documentation you’ll need to provide.
Home Appraisal – You will need to complete some kind of home appraisal to determine the current value of your home. Sometimes lenders are happy with what’s called a drive by appraisal, where the appraiser looks around the house, but doesn’t go inside.
Next Steps After Approval
Like other types of home loans, you’ll be asked to meet with your lender to finalize the loan once all required documentation is verified. Officially closing the loan can take one or more days. Federal law says that if a homeowner refinances a loan from another lender, they have 3 days to back out. This means that your lender most likely won’t give you the funds until the 3-day period is up. There could be further delays if you close a loan around a bank holiday or if there is a delay in the escrow process.
What if I Need Money Soon?
For some, getting refinancing quickly is important as they may need money urgently. However, no matter how efficient your paperwork, delays are more common than you think. Try to take a more leisurely approach if at all possible. You want to have time to shop around for the best rates. You should also consider alternative programs like the Unison HomeOwner program from Unison, which has no monthly payments. Unlike a loan, with Unison’s program you simply allow the company to share in the future change in value of your home. If the home’s price goes up, they share the gain. If they home’s price goes down, they typically share the loss.
Whatever you decide, make sure to look at the risks involved and ask questions to understand the program before making a decision. You owe it to yourself to take the time you need to get all the information.