Tapping into your home’s equity can be a smart move, whether it’s to lower high-interest debt, fund a home renovation, pay for college tuition or make progress toward another financial goal. One way you can accomplish this is through a cash-out refinance, in which you refinance your mortgage for more than what you owe and take the difference out in cash. Many mortgage lenders offer cash-out refinancing, and Bankrate evaluated several to determine the best ones to consider. Here is our guide to the best cash-out refinance lenders in 2021.
Methodology
To determine the best cash-out refinance lenders, Bankrate evaluated lenders based on several criteria, including cost (competitive cash-out refinance rates and low or no fees); expediency (approval and closing times); and borrower testimonials.
Best cash-out refinance lenders
LoanDepot
LoanDepot has refinanced $179 billion in mortgages since its founding in 2010, with more than 200 branch locations across the U.S. serving borrowers in-person, online and by phone. For borrowers interested in accessing their home’s equity in cash, the lender’s cash-out refinance options include:
- Conventional and jumbo cash-out refi
- FHA cash-out refi
- VA cash-out refi
When working with LoanDepot on a cash-out refinance, you can count on the lender’s “no steering” policy to get the best refinancing option for your needs. In addition, if you come back for a second refinance, you won’t have to pay any lender fees, and the lender will reimburse the appraisal fee as part of its “Lifetime Guarantee.”
Refinancing through LoanDepot can take 45 to 60 days, according to the lender’s website, and in a cash-out refinance, you’ll receive the funds one to three days after closing.
On the downside, LoanDepot doesn’t readily provide cash-out refinance rates through its website, so you’ll need to contact the lender to compare your options. The lender doesn’t offer home equity lines of credit (HELOCs) or home equity loans, either, which could be alternatives to a cash-out refi.
PennyMac
Founded in 2008, PennyMac has a range of loan options for borrowers, including cash-out refinancing for those interested in leveraging their home’s equity. The lender’s cash-out refi products include:
- Conventional cash-out refi
- FHA cash-out refi
- VA cash-out refi
Both the FHA and VA cash-out refinancing options also apply to a non-FHA or non-VA loan if you’re interested in refinancing into an FHA or VA loan, according to the lender’s website.
Among its upsides, PennyMac advertises low cash-out refinance rates, which can make it easy for you to do side-by-side comparisons with other lenders. You can also take advantage of the lender’s refinance calculators and a home value estimator to get a better idea of how much equity you have.
While PennyMac already boasts competitive cash-out refinance rates, its “better rate promise” rewards you with a $250 gift card if you find a better offer from another lender. You’ll also benefit from the lender’s closing guarantee, which rewards you a $500 gift card if the lender causes the closing to be delayed.
PennyMac has no brick-and-mortar locations, however, which can be a disadvantage if you’re looking for an in-person experience.
Better.com
Better.com is touted for its 100-percent online process and speedy service. It has somewhat limited loan options compared to other lenders — no VA or USDA loans, for example — but its cash-out refinancing options include:
- Conventional cash-out refi
- FHA cash-out refi
What helps set Better.com apart is the ability to review current cash-out refinance rates on the lender’s website by simply inputting information about your home and your desired cash out. The lender also doesn’t charge lender fees, which can further save you money when you refinance.
Better.com was also named one of Bankrate’s best mortgage lenders overall and best online mortgage lenders in 2021, with fast preapprovals (in as little as three minutes), rate locks (in as little as 30 minutes) and closings sooner than the industry average, according to the lender.
Some drawbacks, however: Better.com isn’t available in every state, so refinancing through this lender might not be an option for some. There are also no branch locations.
Bank of America
If you’re looking for a more traditional lender for your cash-out refinance, consider Bank of America, the second-largest bank in the U.S. with thousands of branches throughout the country. In addition to other types of home loans and refinancing, Bank of America offers borrowers:
- Conventional cash-out refi
- FHA cash-out refi
- VA cash-out refi
The bank was also named one of Bankrate’s best mortgage refinance lenders overall in 2021.
Current Bank of America customers enjoy some perks that others might not have access to. FHA and VA refinancing options are only available to current mortgage customers, for example, and customers enrolled in the bank’s Preferred Rewards could be eligible for an origination fee discount up to $600.
Bank of America’s interest rates are posted on its website for quick comparisons, but the bank doesn’t list lender fees online. Like other lenders, it also has a home value estimator so you can get a sense of what your home might be worth and what your cash-out options are.
New American Funding
New American Funding has proven to be a trusted mortgage lender, with an A+ Better Business Bureau rating and five out of five stars among Bankrate users. The lender’s cash-out refinancing options include:
- Conventional and jumbo cash-out refi
- FHA cash-out refi
- VA cash-out refi
With a cash-out refinance through New American Funding, you can expect to receive your funds within three days of closing. Notably, the lender has flexibilities that some others don’t, making it an attractive option for bad credit borrowers. The lender was also named one of Bankrate’s best mortgage lenders for low credit borrowers in 2021.
New American Funding is available in all states with the exception of Hawaii, and brick-and-mortar branches can be found in many of them.
Fee information isn’t available on the lender’s website, but there are some rate offers advertised to the public. To initiate the cash-out refi process, you can call, request a quote online or apply in person.
Cash-out refinance requirements
To be eligible for a cash-out refi, you typically need to:
- Have a minimum credit score of 620
- Have a debt-to-income (DTI) ratio below 50 percent
- Maintain a minimum 20 percent equity in your home following the cash-out (depending on loan type)
Who is cash-out refinancing for?
A cash-out refinance is best when interest rates are low, and for borrowers who meet the previously mentioned requirements and have specific goals for the funds they’re withdrawing. This includes those seeking to consolidate high-interest debt, complete home renovations or fund a college education.
Cash-out refinance vs. rate-and-term refinance
A cash-out refinance is different from a rate-and-term refinance, in which you lower the rate on your mortgage, change the length of the loan term, or both. A cash-out refi can also lower your rate, but it primarily involves withdrawing a portion of your home’s equity in a lump sum, which adds to the amount of your loan and increases the interest you’ll pay. Those funds can be used for a variety of purposes, such as a major home renovation.
Cash-out refinance vs. HELOC
A cash-out refinance isn’t the only way to tap your home’s equity. You can also pursue a home equity line of credit (HELOC).
With a HELOC, your first mortgage remains intact, but you’ll have access to a revolving source of funds throughout the HELOC draw period, which can be up to 10 years. You are only obligated to pay interest on the funds you withdraw during this period. Once the draw period ends, any balance must be repaid, usually over 15 or 20 years.
The advantages of a HELOC are that you’re only responsible for paying what you use, you can access the funds at any time and you won’t incur interest on untapped funds. However, HELOCs come with variable interest rates, which mean they change, and they could be higher than what you’d get with a cash-out refi.
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