Home Equity Financing: The Definitive Guide

Recently, home values have been changing in most areas across the country, which means many homeowners are experiencing changes in their home equity¹. Newrez has options to leverage your equity like our Newrez Home Equity Loan or a cash-out refinance loan. Our dedicated Loan advisors can advise you on the best option that meets your unique financial needs.

Newrez Home Equity Loan²  vs Cash-Out Refinance³: What’s the difference?

With Newrez Home Equity Loan you can tap into the equity in your home without giving up your current mortgage.  You can keep your primary mortgage interest rate when you secure a second mortgage.

A cash-out refinance allows you to consolidate all other debt payments into one lower monthly payment.  You can access equity and customize your loan term into a new first mortgage.

How a Newrez Home Equity Loan works:

What is Newrez Home Equity Loan?

A new second mortgage product that has a fixed interest rate and is disbursed in a lump sum at the beginning of the loan.

You’ll start repaying it immediately through fixed monthly Principal & Interest (P&I) payments. Newrez Home Equity Loan is secured by your house. This allows you to access larger sums of money at lower rates than credit cards or personal loans.

How does a Newrez Home Equity Loan work?

Lenders will determine how much you may borrow by considering the amount of equity in your home, your credit score, and your debt-to-income ratio. With a Newrez Home Equity Loan, we can lend up to 80% of what your home is worth.

Once your fixed interest rate and monthly P&I payments are determined, you’ll receive the cash value as a lump sum at the initiation of the Newrez Home Equity Loan.

Why and when should I use my home equity?

You can use your home equity loan for just about anything. Popular uses include home improvements, college tuition, vehicle purchase and debt consolidation. People often turn to home equity for big milestones and life events, such as a wedding, education, moving costs, vacation, adoption, fertility treatments or other medical expenses.

Whatever your plans, home equity can provide the funds to make it happen. Maybe you want to use Newrez Home Equity Loan to pay off higher rate debt, such as credit card balances. You might simply want to use Newrez Home Equity Loan for emergency expenses and peace of mind, so you have fast access to cash if the roof leaks or the car breaks. The options are nearly endless.

As with all lending products, you'll want to act responsibly: only borrow what you really need and don't borrow more than you can afford to pay back.

What’s the difference between a home equity line of credit (HELOC) and Newrez Home Equity Loan?

A HELOC is a revolving line of credit that typically has a variable interest rate that lets you draw against your credit limit as you need to access funds. Like a credit card, you can borrow and repay up to the credit limit during the draw period.

On the other hand, Newrez Home Equity Loan is a fixed rate, fixed term loan and paid out in a one-time disbursement, and you’ll start repaying on the full balance immediately through fixed monthly P&I payments. And, you can always pay off your loan balance early without any penalty. For example, the Newrez Home Equity Loan has a repayment term of 30 years.

What is the minimum credit score to earn Newrez Home Equity Loan approval?

Keep in mind the maximum loan amount is based on a few details. Your credit score, ownership type, combined-loan-to-value (CLTV) and debt-to-income (DTI) ratios are all taken into account. Borrowers are required to have a minimum 660 credit score. We can lend up to 80% of what your home is worth, with minimum loan amounts starting at $50,000 up to a maximum of $350,000 with 30-year terms only.

Is a Newrez Home Equity Loan a good idea?

If you have built up equity in your home and you’re looking to finance a specific major expense, then Newrez Home Equity Loan could be a great fit for you.

The fact that it’s secured by your home allows you to access a larger total amount at a lower interest rate –unlike a HELOC, which typically carries a variable interest rate. Newrez Home Equity Loan comes with a fixed interest rate. This means zero surprises when it comes to your monthly P&I payments, and no temptation to spend beyond your budget.

What are term options for a Newrez Home Equity Loan?

Loan terms for Newrez Home Equity Loan are for 30-years only. In general, the longer the term, the lower the monthly P&I payment. And, you can always pay off your loan balance early without any penalty.

How a Cash-Out Refinance Works

A cash-out refinance is a type of loan where a borrower “cashes in” their home equity for cash in hand. How does it work? When you take out a mortgage to buy your home, a portion of your monthly mortgage payment pays off the principal amount (the amount of money you originally borrowed without interest). With each monthly payment, you increase your home’s equity, which translates to wealth that is built up over time. Once you’ve traded in your home equity for cash, it’s your money to spend, invest, or save however you like – it’s yours!

Popular reasons to cash-out refinance include:

• Consolidating debt
• Paying off student loans
• Home improvements and renovations
• Taking an extended vacation
• Paying for major expenses, like weddings

Pros and Cons of a Cash-Out Refinance

Before making a big financial decision, especially a major financial decision like a cash-out refinance, weighing the pros and cons is a helpful factor when determining if it’s the smart move for you.

Pros of a Cash-Out Refi

• Interest rates are typically lower than HELOCs and personal loans.
• There’s a variety of loan types to choose from.
• The cash from your home equity is yours to use how you want.

Cons of a Cash-Out Refi

• A cash-out refinance will likely extend the repayment time of your mortgage.
• There may be additional expenses including closing costs and origination fees.
• If the interest rate on your current mortgage is lower than the interest rate you’ll have on your cash-out refinance, then you could end up having a higher monthly mortgage payment.

Cash-Out Refinance FAQs

What is a Cash-Out Refinance?

A cash-out refinance lets you turn your home’s equity into – you guessed it – cash. Simply put, it’s a loan that replaces your current loan in an amount that includes what you still owe, plus the cash from your home equity that you want to take out.

Is a Cash-Out Refinance Taxable?

A cash-out refinance lets you turn your home’s equity into – you guessed it – cash. Simply put, it’s a loan that replaces your current loan in an amount that includes what you still owe, plus the cash from your home equity that you want to take out.

Are Closing Costs Mandatory?

Yes, with a cash-out refinance, you are still responsible for closing costs. The amount will vary based on where you live, the property you’re refinancing, and the type of loan you choose.

How Long Does a Cash-Out Refinance Take?

Generally, it takes between 45 and 60 days to complete a cash-out refinance. This amount of time can vary by lender and market.

Does My Credit Score Matter During a Cash-Out Refinance?

Yes! Even though you already have a mortgage, your credit score still plays a part in determining your interest rate for a cash-out refi.

Is a Home Appraisal Required For a Cash-Out Refinance?

Yes, in most cases you must get a home appraisal for a cash-out refinance. The appraisal gives an official measurement of your home's value, which will determine how much money you can cash-out.

How Much Can I Cash-Out?

Say you have a $400,000 mortgage and so far, you’ve paid off $250,000, leaving an unpaid balance of $150,000. If you are wanting to access $100,000, your new mortgage loan amount will be $250,000. That’s $150,000 for the remaining balance, and $100,000 for the equity you’re accessing. Keep in mind that you most likely won’t be able to take out 100% of your home’s equity – the max LTV (loan-to-value ratio) is usually 80%. This information does not include additional fees associated with the refinancing costs.

What Can I Use a Cash-Out Refinance For?

Anything! It’s yours. However, since you’re going to be paying the money back, it’s wise to use it for worthwhile investments, such as home improvements. This adds value to your home, so you may be able to get more for it when it comes time to sell. As the saying goes, “You have to spend money to make money.”

Other common practical uses for this money include consolidating high-interest credit card debt, which could help boost your credit score. You could also invest in your child or grandchild’s future by using it for college tuition. However, you can use it any way you like! Just make sure that you can keep up with your new payments.

When I Do a Cash-Out Refinance, When and How Do I Receive the Funds?

Typically, you’ll receive the funds in a lump sum at closing. However, if you have a rescission period, which gives you time after closing to rescind the loan, you’ll wait until the end of that period to get your cash.

What Do I Need For a Cash-Out Refinance?

Just like a regular purchase/refinance, you’ll most likely need to provide the following paperwork:

• W-2s/Tax Returns
• Pay Stubs
• Bank Statements
• Credit Report (usually a credit score of at least 580)

You may also need other paperwork, depending on your situation and lender. Additionally, it’s important to note that you’ll be responsible for closing costs, and any other type of fees you incur.

Getting cash-out home refinance can be a smart move if you need cash and have built some equity. Plus, now could be an opportunistic time to refinance! If you’re ready to access your home’s equity with a cash-out refinance, you can apply for a mortgage online today.

Are you considering a Newrez Home Equity Loan second mortgage or a cash-out refinance? Connect with a loan officer to learn about the most fitting mortgage path for you! Call today at 888-673-5521!

¹ https://www.cnbc.com/2023/09/07/americans-have-almost-30-trillion-in-home-equity-how-to-tap-it.html.

² The rate on your existing mortgage will not change. The Newrez Home Equity Loan program requires borrower to obtain a second mortgage at current market rates. Loan amount based on underwriting guidelines. Minimum 660 credit score. Minimum and maximum loan amounts apply. Program financing only available on properties with one existing mortgage lien and subject to maximum loan-to-value ratio. Not available in all states or territories. Other terms and restrictions apply. Please contact us for more information.

³ By refinancing an existing loan, the total finance charges may be higher over the life of the loan. We may transfer your escrow account balance from your current loan to your new loan. If your current escrow amount is insufficient due to changes in taxes or insurance, we may require additional money when you close on your new loan.

^© 2023 Newrez LLC, 1100 Virginia Dr., Ste. 125, Fort Washington, PA 19034. 1-888-673-5521. NMLS #3013 (www.nmlsconsumeraccess.org). Doing business as Newrez Mortgage LLC in the state of Texas. Alaska Mortgage Lender License #AK3013. Arizona Mortgage Banker License #919777. Licensed by the Department of Financial Protection & Innovation under the California Residential Mortgage Lending Act. Loans made or arranged pursuant to a California Finance Lenders Law license. Massachusetts Lender #ML-3013. Licensed by the N.J. Department of Banking and Insurance. Licensed Mortgage Banker-NYS Banking Department. Additional licenses available at www.newrez.com. This communication does not constitute a commitment to lend or the guarantee of a specified interest rate. Loans secured by a lien against your property. Application required and subject to underwriting approval. Not all applicants will be approved. Interest rate subject to change due to market conditions. If you do not lock in a rate when you apply, your rate at closing may differ from the rate in effect when you applied. Upfront mortgage insurance premium may be rolled into new loan amount. Important information relating specifically to your loan will be contained in the loan documents, which alone will establish your rights and obligations under the loan plan. Fees and charges apply and may vary by product and jurisdiction. Call for details. Terms, conditions, and restrictions apply