Cash-out refinances have become increasingly popular over the past year and a half. But perhaps they’ve gotten a little too popular.
From the first to the second quarter of 2021, cash-out refinances, or “refis,” rose from 37% to 49% of all refinance loans, according to property data analytics firm Black Knight. “With mortgage rates at record lows, there’s been a surge in refinancing and home buying,” says Jeff Arevalo, financial counselor with Greenpath Financial Wellness, a national non-profit credit counseling agency. The average time to refinance a home used to be 35 to 45 days. But now, refinances are running 45 to 60 days, says Arevalo.
If you are in the market to do a cash-out refinance, you may want to budget a longer stretch of time before you see any funds. Here is how cash-out loans work, how long you can expect to wait to receive the cash, and how you can speed up the process.
What Is a Cash-Out Refinance
A cash-out refinance is a type of refinance loan that allows you to take out some of your equity in the home in the form of cash.
With a traditional refinance, you replace your current mortgage with a new loan, often to obtain a lower interest rate or more affordable monthly payment. But in the case of a cash-out refinance, you take out a new loan that’s larger than the balance of your current mortgage. Part of the loan is used to pay off your current mortgage, while the rest is given to you in cash.
People use cash-out refinances for a variety of purposes, including paying off high-interest debt, covering a child’s college tuition, paying for home renovations, and more. Low interest rates and increasing home values have made these loans particularly attractive in the past year.
Since mortgages typically have lower interest rates than other types of financing, people have been able to borrow against their home equity at a cheaper rate than other means of borrowing like personal loans or credit cards.
Simultaneously, Zillow data shows the average home price has increased more than 18% in the past year. As a result, people have more equity to borrow against than they would have a couple of years ago.
As with any other mortgage, lenders will consider factors such as your credit score, debt-to-income ratio, and the amount of equity you have in your home. Lenders usually only allow you to borrow up to a certain percentage of your home’s value, called the loan-to-value ratio (LTV).
How Long Does It Take to Get Funds From a Cash-Out Refinance?
When you close on a cash-out refinance, don’t expect to take a check home with you the same day. According to Melissa Cohn, an executive mortgage banker and Regional Vice President at William Raveis Mortgage, you’ll have to wait a few days after closing to receive the money.
“If this is a primary residence, there is a rescission period of three business days after the closing to receive the funds,” Cohn said. “If it is a second home or an investment property, then the funds are available the same day.”
This three-day period is a legal right that borrowers have called the right of rescission. When you close on your refinance loan, you have three business days to change your mind and rescind the contract. Once this rescission period has passed, your lender will issue the check for the cash-out portion of your refinance loan.
In some cases, it may be possible to waive your right of rescission and receive the money sooner. But for this to happen, there usually must be a personal financial emergency, and you must provide a written statement to the lender explaining the emergency and clearly waiving the right of rescission.
Keep in mind that if you do waive your right to rescission, you can no longer change your mind about the cash-out refinance within the normal three business days.
You can speed up the cash-out refinance approval time by providing your lender with the required documentation in a timely manner. But keep in mind that the current real estate market and other factors outside of your control may slow down the process.
How Long Does a Cash-Out Refinance Take?
The process of getting a cash-out refinance — or any other type of refinance — is similar to applying for a traditional mortgage. Once you choose a lender, you will need to apply and get preapproved. Then the lender will require an appraisal, compile the necessary paperwork, and finalize the loan documents.
A cash-out closing timeline is similar to any mortgage timeline. “Factors that could impact timing include: market conditions, how backed up the lender is, the complexity of your financial situation, and documentation required,” says Arevalo. Since cash-out refinances have grown in popularity, lender capacity has been impacted. “Borrowers should plan on a time frame to refinance running 45 to 60 days, or more,” he says.
What Affects Approval Time
The factors that affect the approval time for a cash-out refinance are largely the same factors that affect any other closing timeline. Here are some of the common reasons:
The Current Housing Market
The current real estate market can affect the timeline. In a busy market, when banks are lending an above-average number of mortgages, it could take longer for them to finalize the loan documents.
As a borrower, you can help speed this process up by being proactive in providing the necessary paperwork. Your lender will need documentation regarding your income and financial situation. “If the borrower promptly responds to lender requests, that could help speed up the process,” says Arevalo.
Another factor that can extend the approval time is the appraisal. In a busy real estate market, you may have to wait several weeks for an appraisal, which pushes back the entire timeline. And if you run into a problem where the appraisal comes back lower than expected, then you may have to go back to the drawing board.
Have reasonable expectations about the outcome of the appraisal and value of your home, Cohn said. “Appraisals on refinancing often disappoint as the appraisers are solely responsible for the comparables and not assisted by a real estate broker.”
The approval time for a cash-out refinance can also be impacted by the type of loan you’re borrowing. “Government-backed loans, such as VA and FHA loans, take longer to close than conventional loans, often due to tightened underwriting standards and documentation required,” says Arevalo.
Cash-out refinances can be a helpful option to use the equity in your house for more immediate needs, including debt payoff, covering a home improvement project, or educational expense. Expect your cash-out refi to take about 45 to 60, and plan to wait three days after closing before you see any cash. Budget accordingly, making sure to give yourself a cushion of time before you need the funds. It’s best practice to shop around for the best mortgage lender and get rate quotes from several to compare.