If you own your house outright and want a loan, you may have several options available to you. One option is a home equity loan, which allows you to borrow against the value of your home. Another option is a cash-out refinance, where you take out a new mortgage for more than you owe on your current one and pocket the difference
Obtaining a loan on a home that you own outright
If you own your property outright and have no current mortgage, its worth is entirely comprised of equity. You can access that equity by taking out a loan against the value of your property. When seeking a loan on a house you own wholly, you have various mortgage loan alternatives, including a cash-out refinance, home equity loan, or HELOC. So conduct your homework and pick the greatest one for your needs.
Can I get a loan on a house that I already own?
Yes, you can acquire a home equity loan, a home equity line of credit (HELOC), or a cash-out refinance on a house you own outright.
A home equity loan allows you to borrow a predetermined amount of money and repay it with interest over a set time by using your house as security. A HELOC, on the other hand, functions similarly to a credit card in that you can borrow money as needed up to a set amount and repay it with interest.
Check your eligibility. Begin here (May 6th, 2023).
- When you apply for a home equity loan or a HELOC, the lender will assess the amount of equity in your property and use it as collateral for the loan. The difference between the current value of your property and the outstanding debt on your mortgage determines the amount of equity you have.
- Cash-out refinancing allows you to borrow up to 80% of the appraised value of your home. You’ll pay back the loan in monthly installments, just like you did before you paid down your mortgage debt.
If you own your house outright and want a loan, it’s important to remember that taking out a loan on a paid-off house puts your home at risk if you can’t make the payments. If you fail to make payments on your loan, the lender may foreclose on your home to collect their losses. This is why it’s crucial to carefully consider your financial situation and ensure that you’ll be able to make the loan payments before taking out a loan against your home. While there are several options available for homeowners who want to borrow against their house outright, it’s essential to approach these options with caution to avoid putting your home in jeopardy.
Home equity loans for a home that has been paid off
Obtaining a loan on an existing home allows you to borrow against the value of your home without having to sell it.
Your credit score, debt-to-income ratio (DTI), loan-to-value ratio (LTV), and other factors will determine the type of loan you qualify for. However, providing your personal finances are in decent shape, you should be able to choose from any of the loan choices listed above.
1. Refinance with cash out
In most cases, cash-out refinancing entails applying for a new mortgage to replace an existing one and borrowing money from your home equity. You are not paying down an existing mortgage when you purchase your property outright. As a result, you will receive the majority or all of the loan in a lump sum of cash.
A cash-out refinance allows you to borrow up to 80% of the value of your house. However, with the VA cash-out refi, you may possibly receive up to 100% of the value of your property. However, only veterans and active-duty service members are eligible for VA loans.
A home appraisal is required for refinancing to determine the market worth of your home. Unless your home is valued at more than $1 million, in which case an appraisal may be possible.
You’ll also have to pay closing charges, which range between 2% and 5% of the loan sum.
Closing expenses can be paid out of pocket, or your lender may be willing to cover a portion of them in exchange for a higher interest rate. You could also include the closing fees in your loan balance.
A credit score of at least 620 is normally required for cash-out refinancing. A better score (720 and above) will earn you a reduced mortgage rate and help you save money on interest.
2. Home equity line of credit
A home equity loan is another possibility. The amount you can borrow, as with a cash-out refinance, is determined by the value of your house. Your credit score will also influence the terms of your loan.
A home equity loan, commonly known as a second mortgage, allows homeowners to borrow up to 80% of their property’s worth. Some smaller banks and credit unions, on the other hand, may allow you to withdraw up to 100% of your equity.
When you are authorized, you will receive the complete loan amount in cash to use as you see fit. The loan will then be repaid with interest through monthly payments.
Interest rates on home equity loans are greater than those on refinancing, but lower than those on credit cards or personal loans. You’ll have a fixed monthly payment because it’s an installment loan with a fixed interest rate.
For a home equity loan, many lenders set the minimum credit score between 620 and 700.
How to obtain a loan on a home that you own outright
Taking up a home equity loan on a property that you own entirely can be a wise financial option because it allows you to tap into the equity you’ve built. It can be utilized for a variety of purposes, including home improvement, debt consolidation, and funding a large purchase.
Here’s how to get a home equity loan on a fully paid-off house, step by step:
Determine your requirements: Before applying for a home equity loan, determine why you need it and how much you want to borrow. Remember that borrowing more than you need may result in higher fees and interest rates.
Calculate your equity as follows: The equity in your home is the difference between its current market value and any outstanding obligations secured by the property. Because you have paid off your mortgage, your equity is equivalent to the current market worth of your home. You can calculate the equity in your house utilizing online tools or by calling a local real estate agent.
Check your credit score: A good credit score is required to receive a favorable home equity loan. Check your credit report for mistakes and, if required, take action to enhance your credit score by paying off outstanding debts and making on-time bill payments.
Look for different lenders: To discover the best home equity loan terms and interest rates, shop around at different financial institutions such as banks, credit unions, and online lenders. Compare loan options and select the one that best meets your requirements.
Gather the following documents: Prepare the necessary paperwork, such as pay stubs, W-2 forms, bank statements, and tax returns.
Apply for the loan here: Fill out the loan application and submit the necessary documentation. Your application will be reviewed by the lender to see if you qualify for the loan.
How do I remortgage a property I owe outright?
You would remortgage any house in the same way.
You can contact your previous lender, but there is no apparent benefit to doing so.
Mojo allows you to compare the best prices from over 90 lenders in just 10 minutes.
Once you’ve chosen the deal that’s right for you, we’ll help you apply – for free.
You only need a few preliminary details, such as:
- Proof of your residence’s address
- Identification proof
- Bank statements from the previous three months
- Wage drops during the previous three months
House outright and want a loan
Home equity loans enable you to borrow money against the value or ‘equity’ in your home. Here, we explore how they work.
The value of your home
The equity in your home is the difference between the property’s saleable worth and the amount borrowed against it. For example, if your property is currently valued at £150,000 and you owe £50,000 on your mortgage, your home’s equity is £100,000. The equity would be £150,000 if you had paid off your mortgage in full.
A home equity loan is a secured loan, which means that lenders lend you money secured against the value of your property. Homeowner loans are another name for them. Home mortgage refinancing is an alternative to a house outright and wanting a loan. This is often where you raise your mortgage, taking some or all of the additional borrowing in cash.
Consider your options carefully before securing further loans against your home. If you fail to make mortgage payments, your home may be repossessed.
I own my home outright; may I refinance in 2023?
Even if you do not currently have a mortgage, you may find yourself in a scenario where you need to obtain additional funds through remortgage. There are numerous reasons for doing so, which must be balanced against the benefits of owning a house free of debt. Before taking this action, it is wise to seek financial counsel.
Can I remortgage my property if I own it outright?
You can, and the lender will use the same criteria as with any other remortgage application, as well as inquire what you intend to do with the money. An unencumbered property is one that does not have a mortgage.
