Mar 29 2022

Refinance to Buy a Second Home

If you’ve got considerable equity in your home, you’ve got some serious purchasing power, if you take advantage of cash-out refinancing. Here’s how.

If you’ve got considerable equity in your home, you’ve got some serious purchasing power. And you may be able to use the wealth you’ve amassed in one home to buy another. If you take advantage of cash-out refinancing. Here’s how. 

Your First Home Finances Your Second Home 

Whether the next house you purchase is a vacation home or an investment property, you might be able to finance its down payment, or perhaps even the entire home, through cash-out refinancing. And at an interest rate that’s comparable with the rates of mortgages for primary residences. 

How does cash-out refinancing work? 

You are essentially refinancing your existing home mortgage for more than you currently owe, getting the difference in cash. That way you achieve two things: refinancing your current mortgage at a new rate, and getting money to buy a second home. The repayment clock resets to either a 15-year or 30-year mortgage, whichever you choose — you are basically doing a reset on your current mortgage at a different rate. 

Let’s look at a hypothetical cash-out refinancing. Say you owe $100,000 on a mortgage for a home that’s worth $200,000. So you have $100,000 in home equity. You can refinance the home for $150,000 and get $50,000 in cash. It’s as simple as that! 

How much cash can you get with cash-out refinancing? 

Oftentimes lenders will allow you to take out up to 80% of the equity you have in your home; 20% home equity is the line above which most borrowers don’t have to pay for mortgage insurance. In some cases, such as with VA Loans, homeowners may be able to take out up to 100% of the home’s value with cash-out refinancing. 

What are the requirements for cash-out refinancing? 

While there is no one single set of requirements for all programs, most guidelines take these qualifications into account: 

  • DTI. Your debt-to-income ratio probably should not exceed 45% — and remember that your existing mortgage counts as a debt. 
  • Credit score. You may be able to get cash-out refinancing with a credit score that is as low as 620. 
  • Longevity. Exceptions aside — inheritance is one — most lenders will want you to have owned the home for a minimum of six months in order to approve conventional cash-out refinancing.  

Talk to one of the lending specialists at City Lending to see if the equity in your home could make the dream of buying a second home come true. 

These days, more and more people are looking to buy their dream homes, especially as remote work and work-from-home setups have become an enduring trend. A 15 point increase in requests for home tours and other home-buying services, along with a 11% rise in Google searches for homes, indicate an uptick in demand to buy houses in the country. However, there is a definite worry about affordability when it comes to housing, especially as hefty price tags on available residences have kept the market just as competitive as before, if not more.

According to the latest reports from analysts, it’s not all bad for existing homebuyers and aspiring house hunters. As previous data shows, timing matters in the housing market, and working on different approaches to home buying – like through a reliable lender – can help advance you towards more affordable housing goals. Below, we discuss whether house hunters should buy now or wait, and why.


What is your financial situation?

Counter to the rise in home demand, there is a considerable lack of supply. Along with rising prices and interest rates, the housing market may seem like a highly competitive space with wealthy homeowners fighting for what little property is left. It can be overwhelming, but knowing where you stand financially can help you better strategize your home buying journey. Following the four key components of affordability, ask yourself:

  • How much do you have saved for a down payment?

  • How much does your household earn?

  • What debts do you carry?

  • What is your credit score?


Familiarizing yourself with these components will help inform your decision on whether or not to wait. For example, taking the time to improve your credit scores before committing can save you from higher interest rates in terms of your monthly mortgage payments. Alternatively, many young homebuyers are compromising by living with family for a significant amount time to save up for a down payment. Getting this out of the way when you’re able to can help you get better loans to buy sooner than later in case interest rates end up increasing.

What kind of home is best for you?

Buying a home is a huge purchase and a big commitment. With shifts to digital and remote ways of working taking place in recent years, this has provided homebuyers with opportunities to be more flexible when buying homes. Homes in areas away from busy cities and urban hubs, for example, are considerably cheaper. This makes them a perfect option for buyers who work from home, or aren’t required to be present in the office on a consistent basis.

The lifestyle you expect to live is as much a factor to consider as money. Condos and townhouses offer lower maintenance costs in the long run, and are perfect for smaller households when compared to single-family homes. If the household grows, homebuyers looking for a side income can even invest in renting out purchased properties to passively earn back what they spent and look into bigger properties for family use.

What does the future look like?

In a previous post, we talked about the rising mortgage and interest rates. While the market may seem bleak or intimidating in its current condition, housing experts also believe factors such as supply have a high chance of returning to pre-pandemic levels by the end of 2024. If you are financially able, buying now while others may be intimidated by the prices can give you an edge. Conversely, taking some time to get your finances in order can benefit you when it comes to securing better loans and lower interest rates.

Working with experts can help you make better decisions for the loans you need, making sure you don’t get trapped with high interest rates or hidden charges. The future of fintech suggests that big data is the future of loans, as more online lenders are now using algorithms, which predict potential defaults better than FICO scores do. Data is also leveraged precisely to identify customers who fit various products well — which can give you peace of mind, as an aspiring borrower. Here at City Lending for example, we find the right programs to fit your needs and profile, making sure you get some of the lowest down payments and interest rates along with a premium service.

And if you’re still unsure, it’s worth considering that waiting it out in the market’s current wild conditions could result in even higher interest rates in the future. At the end of the day, buying a house is ultimately a huge investment, which comes with benefits such as privacy and a financial investment that for the most part will weather most economic storms.

Find out if this is the right time for you to get a house by contacting one of our loan officers today.


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Written by Alicia Christopher

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