A cash-out refinance is a great way to pay for your renovation project. The only problem? Not enough equity to fully pay for the renovation.
If you are:
- Thinking about a major renovation
- Considering using a cash-out refinance to pay for it
- Unsure if a cash-out refinance would cover it
Keep reading! This article will help you figure out if a RenoFi Refi, the RenoFi version of a cash-out refinance designed for renovations, is the best option for you.
What is the RenoFi Cash-out Refinance?
The RenoFi Refi is the only cash-out refinance designed for major renovation projects. It allows homeowners to take cash out of their future home equity, after the renovation, to fund a remodeling project now.
Traditional cash-out refinance loans allow you to take cash out of the equity you’ve already paid into your home, but often that’s not enough for recent homebuyers.
Traditional cash-out refinance
You can borrow up to 80% of your home’s current value (LTV), minus your outstanding mortgage balance.
(Home’s current value x 80%) - outstanding mortgage balance = traditional cash-out refinance
RenoFi Refi
You can borrow up to 80% of your home’s future value, including the added value that your renovation will provide, minus your outstanding mortgage balance.
(Home’s appraised future value x 80%) - outstanding mortgage balance = RenoFi Refi
With both options, when you take cash out of your home’s equity, your mortgage will be “refinanced” and replaced with a larger loan to cover the total amount still owed. You will have to close on this new loan, but rather than taking out a second loan, you’ll still have that one mortgage payment every month, which will be slightly increased to encompass the renovation.
Real-world example
Current home value: $500,000
Outstanding mortgage balance: $350,000
Cost of renovation: $150,000
Value of home after renovation (calculated using a RenoFi appraisal): $605,000
Example using a traditional cash-out refinance
(Home’s current value x 80%) - outstanding mortgage balance = traditional cash-out refinance
$500,000 x 80% = $400,000 - $350,000 = $50,000
You can take out $50,000 in cash.
Example using a RenoFi ReFi
(Home’s appraised future value x 80%) - outstanding mortgage balance = RenoFi ReFi
$605,000 x 80% = $484,000 - $350,000 = $134,000
You can take out $134,000 in cash.
| Cash-out refinance type | Example borrowing power |
|---|---|
| Traditional cash-out refinance | $50,000 |
| RenoFi ReFi | $134,000 |
Who can qualify?
There are a lot of factors that will determine whether or not you can qualify for a cash-out refinance with a lender.
RenoFi works with several elite credit union lenders that provide RenoFi ReFis, a product you cannot get anywhere else.
These are the main factors that determine whether you can qualify for a RenoFi ReFi:
- Your credit score
- Your debt-to-income ratio
- Your financial history (ex. recent bankruptcies)
- Your project (must be a renovation with a licensed contractor)
…and several other factors you can read about more here. You also should note that it is not a purchase mortgage product, it’s just a refinance.
If you are looking for a mortgage to purchase a home, you’ll need to look for a traditional mortgage product. RenoFi ReFis are just for refinancing.
What are the lender rates and terms?
This will also depend on several factors:
- your loan-to-value ratio (LTV)
- your credit score
- your lender
- your location
To see if you’re a good fit for a RenoFi Refi, try our estimate tool. It is completely free, only takes a few minutes, is fully online, and doesn’t require a credit check.
You should note that the tool is not a final say on a loan, it is just a prediction based on the information you provide. Your lender will ultimately provide you with your loan terms based on a hard credit check.
Generally, the RenoFi Refi terms and rates are quite similar to that of traditional refinancing options. RenoFi’s lending partners offer terms up to 30 years, with the full loan amount distributed at closing.
How much can I borrow?
The RenoFi Refi lets you borrow up to 80% of your home’s after renovation value (ARV), based on a RenoFi-facilitated appraisal, minus your outstanding mortgage balance.
A traditional cash-out refinance would let you borrow up to 80% of your home’s current value, minus your outstanding mortgage balance.
This appraisal required for a RenoFi Refi is an official calculation of your home’s value based on your renovation plans that takes place before you even apply for the loan, so you can be confident in your borrowing amount and your home’s future value.
To learn more about this appraisal, read our guide.
The total mortgage amount (new mortgage after refinance) is capped at $2,000,000, but this is not the same as the cap on the cash-out proceeds. This $2,000,000 limit is referring to the total refinanced mortgage amount after the cash-out, which would also include your previous outstanding mortgage balance. There is no hard cap on just the cash-out proceeds, but anything over $600,000 will require a lender review.
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