A cash-out refinance is a great option for home improvements. By definition, a cash-out refinance takes cash out of your loan for you to keep. How does this work? When you get a cash-out refinance loan, you get a loan amount that is actually greater than the amount you still need to pay off on your current home mortgage. Say you owe $100,000 on your home. A cash-out refinance would get you a loan amount of more than $100,000. For example, you might get a loan for $125,000. This means you can keep the $25,000 (minus loan closing costs) and put it toward those home improvements!

“We had a great experience applying for a VA loan with HomePromise.” – Martha W.

The great thing about a cash-out refinance is that the Department of Veteran’s Affairs requires that it benefit you. A cash-out refinance loan must give the borrower a net tangible benefit as specified by the VA’s cash-out refinance quick guide. This could mean you’re able to pay off your mortgage faster, have lower monthly payments, get rid of monthly mortgage insurance or reduce your interest rate.

However, a cash-out refinance isn’t the only way to fund your home improvement dreams. Keep reading to hear more about home equity loans and HELOCs!

Cash Out Refinancing vs. Home Equity Loan

There are a lot of similarities between a cash-out refinance loan and a home equity loan. They are both based on equity, or the portion of your home that you own and are not currently paying off. If you’ve been paying off your home for a long time, you’ll have paid off a solid amount of your current mortgage, which means you have significant equity in the home. Another source of equity is appreciation of your home’s value. 2021 is a seller’s market, which means homes are appreciating in value nicely. Chances are, if you’ve owned your home for several years you may have equity in your home right now! This makes 2021 a great time to take advantage of either of these options get cash out.

A cash-out refinance loan and a home equity loan both get you money to use at your discretion at closing. Both are great for funding your dream home improvement project! You’ll need to remember that you have to pay for closing costs. In either caseBut, if you work with a VA lender like HomePromise , qualifying for a VA loan means that you may be able to borrow 100% of your home’s value. It’s worth noting that most VA lenders will cap the value you can borrow at 90% or lower. But HomePromise may approve you for 100% of your home’s value!  A home equity lender may cap you at 80%, 75% or even lower.

A cash-out refinance is unique because, like any refinance, it replaces your current home loan. Because they are backed by the VA, cash-out refinances typically come with low competitive interest rates that may lower your monthly payments. Another great feature of a VA cash-out refinance is that you can use it to convert a non-VA loan to a VA loan.

A home equity loan is actually a second loan on your home. Rather than a refinance, it adds a second loan to your property. When compared to a cash-out refinance, it usually comes with higher interest rates, than VA mortgages since second loans often have higher interest rates than first loans. Also, the term of a second mortgage may be much shorter than a VA loan which is allowed to be a 30 year mortgage.  Some home equity lenders restrict you to a 15- year loan or even a 5- or 10- year loan.  That makes your mortgage payment on a home equity loan much higher than a 30- year VA loan. Here, cash-out refinances have the advantage, because they count as the first loan on the property.

But the options don’t stop there. Another possibility that you may have heard of is a HELOC, or a home equity line of credit. In the next section, we’ll explain how HELOCs compare to cash-out refinances and home equity loans.

Home Equity Loans and HELOCs vs. Cash Out Refinancing

Just like cash-out refinances and home equity loans, HELOCs are based on the equity in your home. But HELOCs are more similar to home equity loans than cash-out refinances. That’s because a HELOC is not the primary loan on your property – like a home equity loan, you would get a HELOC in addition to your current mortgage because it is considered a second mortgage.

Functionally, home equity loans and HELOCs work differently. Home equity loans give you a lump sum of money at closing, which you are then able to use for your home improvements. A HELOC is just what it sounds like – a line of credit. That means you have a credit limit and you can borrow as much as you want up to that limit. But you don’t get that money up front. Instead, yYou’re given a draw period, which is a length of time (for example, five or ten years) during which you can borrow up to your credit limit. The only requirement for this is that you make interest only payments during the draw period and stay below your credit limit. This might sound nice;, since you can determine how much money you actually need to borrow for your home improvements as time goes on. But once that draw period is over, you’ll have to start paying back what you’ve borrowed. Typically, these payments are pretty big, and borrowers often struggle to make them. I’m sure you’re wondering how big the payments can get.  Well, you may see your payment double or triple when the draw period is over.

In terms of financial implications, a big difference between a home equity loan and a HELOC comes down to interest rates. A home equity loan has a fixed interest rate and fixed monthly payments, which means your payment won’t change over the loan term. But a HELOC has a variable interest rate. On top of the increased monthly payment after the draw period, for many HELOCs your lender could actually increase your interest rate at any time. This means you could be stuck paying huge big monthly payments that you didn’t anticipate.

We recommend that, whatever you decide, be very cautious with HELOCs. They are just too risky for the most borrowers. Even if you are very confident in your ability to budget for increased monthly payments after your draw period, the variable interest rate of HELOCs means that home equity loans and cash-out refinances are a better option.

Why Cashing Out is Easier for Most People

When it comes down to it, we recommend you look into a cash-out refinance loan first. When compared to a home equity loan, it usually offers better interest rates. Plus, refinancing and getting a new first mortgage instead of getting a second loan means you only have one home loan to worry about, which simplifies the process. Now is a great time to take advantage of low interest rates and improved home equity thanks to home appreciation in 2021. All in all, a cash-out refinance is both an easier and smarter financial decision to fund your home improvements.

Cash Out Refinance with HomePromise

When looking for a lender to help you fund your home improvements, look to us first! At HomePromise, we are committed to understanding your unique situation. Plus, we have been known to lend provide Veterans and active duty service members with a 100% loan-to-value cash-out refinance option that most lenders don’t have. This means you may receive more funds from your cash-out loan with us than with other lenders. Prequalify with us today to get a sense of what we can may be able to do for you.

Even if you are not sold on a cash-out refinance over a home equity loan, we recommend you call now at 800-720-0250 to speak with our home loan experts! We are here to answer your questions. Applying with us is always free – that’s the HomePromise Way.

Should Military Families Buy a Home?

It can be frustrating to pay high monthly payments to rent a home at every duty station when you know you could save money with a home you own. Often, making mortgage payments would cost less than renting. But is it worth it?

The benefits of owning a home can be significant. If you own a home, you’re diversifying your investments, and building equity. Plus, being a homeowner will give you a “tax shelter,” which may get you some discounts on your taxes (please discuss tax matters with your tax professional). It’s true that you’re guaranteed to move often while in the military – but the average American moves every seven years anyway. And since you’re in the military, you have unique access to a VA loan, which has special benefits. VA loans are backed by the U.S. Department of Veterans Affairs, which means that it’s easier to get good deals on your loan. For example, you don’t need to make a down payment if you’re getting a VA loan, and VA lenders like HomePromise have low minimum credit score requirements. That means that even if you’ve had financial trouble in the past, owning a home isn’t out of reach! You may qualify at HomePromise.

“Thank you for making my family’s dreams come true.” – Larry T.

But, you need to be ready for the unexpected. If you’re transferred without much notice, you’ll need a property manager available to help rent and manage the home in your absence.  So, there are reasons to buy and reasons not to buy. Sometimes it may not be the best choice to buy a house while in the military. The best answer we can give is that it depends on your unique situation. Whenever you try to assess whether you “should” do anything, your decision is going to be highly dependent on your situation and your goals. Calling HomePromise at 800-720-0250 is a great option because our VA lending experts can give you advice about your options.  They can give you the pros and cons to help you evaluate what you should do.

Is It Smart to Buy a House While in the Military?

There are certain reasons that would make the decision to own a home a bit smarter. Besides the fact that you may be able to save money compared to renting, (later, we’ll explain how to tell if you’ll save money if you buy) there are some factors that can make buying a home a great idea. Below, we’ll explain some of those reasons, and why they should encourage you to buy a house.

One reason it would be smart to buy a house rather than rent is if you want to make changes to your property. Those changes could mean painting the house or doing some major landscaping. These kinds of changes might be important to you because they make you feel more at home, or you may be someone who can’t live without using your green thumb. Regardless of the reason, many times any changes to the home are impossible in a rental property. If you want a home that you can make changes to, it would be smart to buy a home instead of renting.

Another reason that buying a home would be a smart decision is if you have a pet. It is legal for a landlord to deny someone who has any kind of pet, or put restrictions on what kinds of pets are allowed in the home. For instance, you may be interested in renting, but can’t find a place that will allow you to keep your pet. If you’re like many service members, your pet is a non-negotiable. At this point, it would be smart to look into buying a home so that you can be sure to live in a place that allows your pet not only to live with you, but to thrive! After all, if you’re buying, your options expand and you can make sure to get a home with a fenced-in yard, or lots of outdoor space.

Something else to consider is that pretty much any landlord will not allow you to smoke in their property (and it is legal for them to do so). If you smoke, it would be smart to look into buying a home so that you don’t have to worry about negotiating that with a landlord. When you own a home, you get to decide what you can do in your house. If you want to smoke in your house, then buying a home would be a smart decision!

Another reason that it might be smart to buy a home is if you have many kids. Landlords aren’t allowed to turn you down for a house rental for a large family, but unfortunately, landlords are often less likely to rent to large families, especially with younger children, because kids are more likely to damage the property. Plus, to make your home safer for your kids, you may want to do things like install safety gates near stairs, which often requires some damage to the walls of the home. Landlords would prefer to avoid this, as it creates more hassle and repair costs for them, so it may be very difficult to find a home that you can rent. Plus, with lots of kids, you’re looking for a larger home. That can be hard to find close to base. In this situation, it would be smart to look into buying a home.

One other reason that would make buying a home a smart decision is if you’ve found your forever home. If you find a home that you can see yourself living in for a long time after retirement, it may be worth it to take on the costs of owning a home and the work of potentially having tenants in the future if your duty station changes. If you don’t buy the home, you may not get another chance. Plus, you can begin paying off the home while you’re still getting a Housing Allowance from the military.

Should I Buy a Home on Active Duty?

So how can you know whether to buy a home while on active duty? Consider the factors we’ve listed above, but it’s also important to know how to evaluate the income a property could bring you. A general rule of thumb when trying to evaluate whether the home you’re considering will be a good rental property is the 1% rule.

The 1% rule helps you evaluate whether buying that house you’re considering would be a good investment – in other words, whether your rental income would offset your expenses. To use the 1% rule, you’ll need to know what similar properties rent for. When looking for comparable properties, look for homes that are close to the one you’re considering. Also, you should look for houses that share other characteristics, like size.

Now that you know this information, you can do the math and use the rule. Figure out what 1% of your purchase price is. For example, if you would buy the house that you’re looking at for $100,000, then 1% of that is $1,000. According to the 1% rule, you need to be able to rent the house for $1,000 per month in order for you to get some return on your investment. If similar properties nearby are renting for that much, then your property is probably a good investment! But if the property fails the 1% test, then it probably isn’t a great financial investment. Remember, though, that you may have other reasons for buying a house which might make this less important to you. However, if the property fails the 1% test by a lot (by thousands of dollars, for example), it probably doesn’t make good financial sense to buy it if you plan to rent it out in the future.

While this is a very useful tool, it should not be used as an end-all standard of what makes a good rental property. The 1% rule does not consider the benefit of home price appreciation. There can be great benefit to you from the value of your home going up while you own it. This is called home price appreciation. Over the last 60 years, homes across the United States have increased in value significantly, although you can’t be certain that any particular home will rise in value. When you add the benefit of potential future home value appreciation, you may find it is worth it to buy a home even when it does not meet the 1% rule.

When Should I Buy a Home in the Military?

If you decide you want to buy a home based on all the factors we’ve talked about, you need to think about timing. Timing matters because it can affect whether you’ll be able to buy a house for a good price. A great indicator of a good time to buy a house is the housing market.

A seller’s market happens when many people want to buy homes, but not many homes are available. When this happens, sellers get to raise their prices, since more people want what they’re selling. Obviously, this is great for a seller but not great for a buyer. A buyer’s market is essentially the opposite situation. This happens when many people want to sell homes, but not many people are trying to buy homes. In this case, sellers have to lower their prices; if a seller makes their property too expensive, buyers will take better deals on other houses, and the property won’t be sold. Even when a market is a seller’s market, there are always some homes available if you work hard and have flexibility in your expectations.

If you’re looking to buy somewhere that is a seller’s market right now, don’t be discouraged! Just make sure it’s a good decision for your personal finances. Your dream home isn’t out of reach!  Call HomePromise at 800-720-0250 to get valuable advice about whether you’re ready to buy a home.

How to Buy a House While in the Military

You made it! You’ve considered your options, done the math, and now you know you’re ready to buy that house you’ve been eyeing. Now it’s time to look into getting a mortgage with a competitive interest rate. Mortgage interest rates are important because a mortgage is such a large loan. You want to get a good interest rate so that you’re not paying more money than you need to. Since you are in the military, you may qualify for a VA home loan. Military spouses can also qualify for VA loans! Here are some tips on finding the best VA loan for you. When you’re figuring out next steps, it’s important to find home loan experts who are familiar with lending to service members and spouses. We recommend reaching out to us at HomePromise to hear how we can help you. We are home loan experts!

If you qualify for a VA loan, we will help you evaluate your situation. HomePromise approves loans that other lenders do not, and with the VA program, you often can avoid making a down payment! Plus, HomePromise does not have a low cap on your loan amount – we offer a 100% LTV VA loan. In some cases, we’ll even allow you to use your assets as income. Best of all, applying with us is always completely free, so apply today to see if you qualify!