Refinance

Cash-Out Refinance in California

A cash-out refinance pays off the mortgage you have with a new, larger first mortgage on the same home and pays you the difference in cash at closing. The new loan has its own rate, term and closing costs, and they replace the ones you had. How much you can take out is capped at a share of the home's appraised value that the loan program sets and the lender applies; it is not a figure we can print. A cash-out refinance can be written under a conventional, FHA, VA, DSCR or bank statement program; we arrange them on the home you live in and on rentals, in San Luis Obispo County and on the Central Coast, and shop them across the lenders on our panel. This page sets out who the loan fits, how the cap works, what it costs and when it does not pay, how it compares with a home equity line of credit, and what a lender asks for.

See what I could take out Call (805) 704-9093

The program in one box

What it is: A refinance pays off your existing mortgage and creates a new one. When the new loan is for more than you owe, you can receive the difference in cash at closing; that is what makes it a cash-out refinance. On a home with no mortgage on it, the new loan is simply the first.
Who it suits: A homeowner with equity who wants one sum rather than a line to draw on, is willing to replace the mortgage they have, rate and terms included, and has a use for the money that is worth securing against the home.
How much you can take out: Every program caps the new loan at a share of the home's appraised value. The cap for a cash-out refinance is set by the agency behind the program, lowered further by some lenders, and differs by occupancy, number of units and program. The appraisal, not the price you paid, is the value it is measured against.
Which rules apply: A conventional loan follows Fannie Mae's or Freddie Mac's cash-out rules, an FHA loan follows HUD's handbook, a VA loan follows VA's statute and regulation, and a DSCR or bank statement loan on a rental follows the lender's own terms. The lender that funds the loan can add conditions of its own.
What it costs: A refinance carries its own closing costs, with application, origination, points, appraisal, and title search and title insurance among the usual categories, and a cash-out refinance can finance them into the new loan. Set the costs against the time you expect to keep the loan before deciding it pays.
The rate: Whatever the new note carries. Refinancing to take cash out replaces your current rate with the new loan's on the whole balance, not only on the cash, which is the first thing to weigh against a second mortgage that leaves the first alone.
Cash out or a HELOC: A home equity line of credit (HELOC) sits behind a first mortgage you keep as it is: you draw on the line as you need to, and the rate on a line can change. A cash-out refinance pays one sum at closing and replaces the first mortgage. Both are secured by your home.
Your right to cancel: On the home you live in, federal law gives you, and any other owner whose principal residence it is, the right to rescind the refinance for a short rescission period the rule sets, and no money is released until that period has passed. If the same creditor is refinancing its own loan, the right covers the new money only. A cash-out refinance that goes back into a rental you do not live in is business credit, and the right does not apply to it.

What this program is good at

One sum at closing, which Fannie Mae's guide lets you use for any purpose: the loan pays off your existing mortgage and any subordinate liens, finances the closing costs, points and prepaid items if you choose, and pays you the rest.
One first mortgage rather than a second loan behind the first, for a borrower who would rather replace the loan they have than add to it.
It is written under the program that fits your file: conventional on a principal residence, second home or rental; FHA or VA on the home you live in; DSCR or bank statement on a rental the lender qualifies on the rent or on your deposits.
Under California's property tax rules, refinancing is not a change in ownership: the creation, assignment or reconveyance of a lender's security interest is excluded, so a refinance by itself should not bring a reassessment.
A VA cash-out refinance has to pass VA's net tangible benefit test and comes with a standardized comparison of the old loan and the new, given twice, with an estimate of the equity being taken out. The lender owes you that disclosure.

Who qualifies

What a lender weighs before this program is on the table. A lender can add rules of its own, and those rules can differ from one lender to the next.

Equity, and the cap on the new loan

A cash-out refinance borrows against your equity: the appraised value of the home less what you owe on it. Each program caps the new loan at a share of that value, set by the agency and sometimes lowered by the lender, and the cap turns on whether the home is your principal residence, a second home or a rental, how many units it has, and the program. FHA measures its cap against the property's adjusted value and VA against the reasonable value on its notice of value, which is why an appraisal is part of a cash-out refinance. Any part of a VA funding fee that would push the loan over the home's value must be paid in cash at closing. The cap decides how much you can take out, and the appraiser, not the borrower or the broker, sets the value it is measured against.

How long you have owned the home, and your payment history

Each program requires you to have owned the home, and under some programs to have made payments on the loan being refinanced, for a period the agency sets before a cash-out refinance can close. Fannie Mae asks that at least one borrower has been on title for a period its guide sets, measured to the day the new loan funds, and that the loan being paid off has been in place for a period of its own; there is no wait for a home you inherited, and a borrower who bought recently without a mortgage can recover the documented purchase money under Fannie Mae's delayed financing rules. Freddie Mac's Guide carries rules of the same kind. FHA requires the home to have been owned and occupied as your principal residence for a period HUD sets before the case number is assigned, with an exception for an inherited home never treated as a rental, every mortgage payment made within the month due over a look-back period HUD sets, and a minimum number of payments on the current loan; a home owned free and clear can be refinanced as cash-out. A VA loan being refinanced must be seasoned for the period federal law sets. A late mortgage payment inside FHA's look-back takes the file out of automated approval and into manual underwriting.

Occupancy, and the program each file fits

A conventional loan sold to Fannie Mae or Freddie Mac allows a cash-out refinance on your principal residence, a second home or an investment property, with the cap and the credit requirement differing by which it is. FHA permits cash-out refinances only on an owner-occupied principal residence, and will not count a non-occupant co-borrower's income or the rent from an accessory dwelling unit on a one-unit home toward qualifying. VA requires that you live in the home being refinanced, or return to it after major alterations, and a spouse may satisfy that for a veteran on active duty. A cash-out refinance of a rental you do not live in can also be written as a DSCR loan, qualified on the rent, or as a bank statement loan, qualified on your deposits; credit to acquire, improve or maintain such a rental is business-purpose under Regulation Z, outside the regulation's consumer rules, and each lender sets its own terms for it.

The costs, and when it does not pay

A refinance re-closes the whole first mortgage, so it carries the full set of refinance costs, and in a cash-out refinance they can be financed into the new loan, which means you pay interest on them. The Federal Reserve's consumer guide puts the test plainly: estimate how long it would take to recover the refinancing costs, and if you expect to move before then, the savings may not exceed the costs. Our refinance calculator works the break-even out from your own numbers. The new rate applies to the whole balance, not only to the cash, so whether a cash-out refinance or a second mortgage that leaves the first alone costs less turns on your current rate, how much you need and how long you will keep the loan; the HELOC comparison on this site sets the two side by side. And if the cash would pay off other debts, the CFPB's caution applies: you are taking out one loan to repay another, and this one is secured by your home.

VA and FHA have conditions of their own

A VA cash-out refinance must pass VA's net tangible benefit test, under which the new loan must deliver at least one benefit from a list federal regulation sets, such as a lower rate, a lower payment, a shorter term, an end to monthly mortgage insurance or the conversion of an adjustable rate. The lender must give you a standardized comparison of the existing loan and the proposed one on two separate occasions, early in the application and again at closing, with an estimate of the home equity being removed and an explanation of how that may affect a later sale or refinance, and you certify that you received it. VA charges a one-time funding fee, which can be financed or paid at closing and which VA waives for, among others, a veteran receiving VA disability compensation; VA publishes the rate charts, and we do not. FHA collects an up-front mortgage insurance premium, which can be financed, and an annual premium paid monthly, and HUD publishes both.

How it works with us

What happens once you get in touch

The steps in order, so you can see what is coming. Nothing here is underwritten until a lender underwrites it.

Tell us what you owe and what the money is for
What you owe on the home and to whom, roughly what the home is worth, whether you live in it, and what the cash is for. That is enough for your loan officer to say which programs the file can be written under.
Gather the documents
The usual income and asset packet, which the CFPB's checklist lists as recent pay stubs, your wage statements and signed federal tax returns for the years the lender names, documentation of other income, your most recent bank statements, proof of identity and your Social Security number, plus a payoff statement for every mortgage on the home, proof of homeowner's insurance, and for VA your Certificate of Eligibility. FHA also asks for evidence that you have lived in the home and made every payment within the month due over its look-back period. Expect to refresh statements and pay stubs during the process; the lender's own list governs.
The appraisal and the lender's decision
The lender orders an appraisal, and the cap is measured against the value it returns, so the amount you can take out is not known until then. Underwriting reads the file under the program's rules and the lender's own, and the lender decides. If the value or the payment history comes back short of the program's conditions, the answer is a smaller loan or no loan.
Closing, the rescission period and the cash
You sign, and on the home you live in federal law then gives you a short rescission period the rule sets, during which you may cancel and no money is released other than into escrow. Once it has passed and the lender is satisfied you have not rescinded, the old mortgage is paid off, the liens and costs you chose to finance are paid, and the rest is disbursed to you.

Get a quote on this program

Tell us what you are planning and where the property is. A loan officer here reads it with this program in mind and can go over whether it fits your file, and what else might.

Call, email or start the application

Call or write to us and a loan officer here reads what you send. If you are ready, the application is open.

Call (805) 704-9093 Email us Continue to the application

What people ask about this program

If yours is not here, call us. The useful answer depends on your file.

What is a cash-out refinance?

A cash-out refinance replaces your current mortgage with a new, larger loan and pays you the difference in cash at closing. The new loan has its own rate, term and closing costs.

How much equity can I take out of my California home?

It depends on the loan program, your property type, occupancy, credit and the appraised value. Each lender sets a maximum loan-to-value. A licensed loan officer can check which programs fit your file.

Is a HELOC or a cash-out refinance better?

A HELOC keeps your first mortgage as it is and adds a line of credit behind it. A cash-out refinance replaces the first mortgage. Which costs less depends on your current rate, how much you need, and how long you plan to keep the loan.

Does a cash-out refinance raise my property taxes in California?

Refinancing is not a change in ownership under California's property tax rules: the creation, assignment, termination or reconveyance of a lender's security interest is excluded, so a refinance by itself should not bring a reassessment, and supplemental assessments arise from a change in ownership or the completion of new construction. The exclusion covers the loan, not a change of title made alongside it. If a person is added to or removed from title as part of the refinance, the assessor looks at that transfer on its own terms, and you may be asked to show it was for financing only.

Is the interest on the cash I take out tax deductible?

That depends on how you use the money and on limits federal law sets, and we do not give tax advice. The IRS treats interest on a loan secured by your home as home mortgage interest only to the extent the money was used to buy, build or substantially improve that home, and when you refinance, the new loan counts that way only up to the balance of the old one; cash used for anything else is not treated the same way. The IRS publication on the home mortgage interest deduction is the reference, and a tax professional should look at your own return before you take the cash out.

Home equity

Home equity lines and home equity loans

A line of credit secured by your home, or a loan paid in one sum, that sits behind any first mortgage, which stays as it is. The rate on a line can change, and falling behind puts the home at risk.

It leaves your first mortgage in place, under its own terms. A cash-out refinance replaces that loan with a larger one, and the new loan's rate and terms replace the old.
You borrow against the line as you need to, up to its limit and within the plan's rules, rather than taking a single sum at once, and as you repay, that credit can become available to borrow again.
Once a line is open, Regulation Z bars the lender from changing its terms except in the cases the regulation lists.

More about HELOC

Not government-insured

Conventional loan

A loan for solid credit and income, with private mortgage insurance that does not have to be permanent.

Private mortgage insurance does not have to be permanent. On a one-unit home you live in, the Homeowners Protection Act of 1998, subject to its conditions and exceptions, gives you the right to ask for borrower-paid mortgage insurance to come off once the loan is paid down far enough against the home's original value, and requires it to end automatically at a later point on the loan's amortization schedule.
It works for a primary residence or an investment property of one to four units, and for a one-unit second home. FHA and VA are built for a home you live in; FHA allows a second home only in narrow hardship cases.
There is no federal credit floor on a conventional loan, and Fannie Mae's Desktop Underwriter sets no minimum score of its own: it weighs the credit with its own risk factors and returns what the file needs.

More about Conventional

Investor and self-employed

DSCR loan

Qualified on the rental's rent rather than your tax returns. A business-purpose loan for an investor, priced like one.

The rent qualifies the loan, so a rental that carries itself can be bought or refinanced without reopening your tax returns, your business's returns or the entities behind them.
A purchase or a refinance, including cash out of a rental you already own, which is how one property's equity becomes the next property's purchase.
The loan can be made to an LLC that holds the property.

More about DSCR

Where this program fits:Buying a home Refinancing The county's loan limits The Central Coast Services

The county seats:San Luis Obispo Santa Barbara

Run the numbers:Refinance break-even calculator

Published by

California Mortgage Solutions Inc. · Company NMLS #325189

This page is general information about a loan program, not an offer of credit or a commitment to lend. What a lender will do with your file depends on the file.

Tell us about your file

Answer a few questions and your loan officer can talk you through which programs could fit your file, including when this one does not.

Start my application Call (805) 704-9093

No credit pull to get started. This is not a commitment to lend. Equal Housing Opportunity.