If you are consolidating your debt by refinancing your mortgage, you have to qualify for the new loan. The requirements vary depending on your current loan type and the type of loan you apply for. The first thing you need to do is know how much equity you have in your home that you can use to pay off your existing debts.
You will typically need more than 20% of your home equity to qualify for a debt consolidation mortgage. That is because most lenders want you to leave at least 20% of your home equity untouched when using a cash-out refinance.
You will also need to meet the minimum credit score requirements. For example, a conventional cash-out refinance requires a credit score of at least 620.
FHA also has a cash-out refinancing program, which allows a lower FICO score of 600. But, be aware that taking out a new FHA loan means you will pay for “MIP” mortgage insurance premium, including an upfront fee and a monthly mortgage insurance fee. This will increase the total cost of your new loan and eat into your savings margin.
For qualified veterans and service members, another option is to consolidate debt via the VA cash-out refinance. Unlike other refi programs, the VA cash-out loan lets you refinance 100% of your home’s value. Veterans might qualify even if they don’t have enough equity for a conventional cash-out loan.
If you want to learn more about the requirements and the process, schedule a consultation or give me a call at 916.300.1450.
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