Smart Moves by Ellen James Martin

Cash-out Refi Tips

Much of the demand for mortgage refinancing has dropped off in recent months as rates have trended slightly higher. But one refi category that lets homeowners draw on their equity remains relatively strong.

“Many owners have built up a lot of equity in the last five years and now they want to leverage that equity,” says Daren Blomquist, a senior vice president at Attom Data Solutions (, which tracks real estate markets throughout the country.

Though few owners are refinancing to trade one mortgage for another at a lower interest rate, because they probably already have a low rate, more are doing a refi to liberate funds for other purposes.

“One major reason for a ‘cash out’ refi is to access funds for remodeling,” according to Blomquist. He notes that an increasing number of baby boomers wish to “age in place” rather than downsize to another property. But that often means costly renovations, like adding a first-floor master suite to a two-story house.

Besides those who want to refinance to remodel, many older owners are refinancing (or tapping equity through a home equity line of credit) to help grandchildren with college expenses. Others tap equity for travel or for money to buy an income-producing rental property.

In most ways, applying for a cash-out refi is no different than applying for a plain vanilla refi or a mortgage to purchase a home. Here are a few pointers:

-- Update yourself on mortgage basics before you apply.

Many older mortgage applicants need a refresher on mortgages. Because they’re rusty on the topic, they hesitate to ask questions, says Sid Davis, the author of several books on real estate.

But as Davis says, the main concepts of mortgage lending aren’t hard to grasp if you take a little time to do so. You can do a quick study of mortgage essentials by visiting the website of the U.S. Department of Housing and Urban Development (

In addition, he suggests you pick up a book on mortgages, though anything published on the topic more than a year or two ago is likely out of date.

“When it comes to mortgages, the turf is changing so quickly,” he says.

-- Look for a lender who will meet you face-to-face.

Most lenders are entirely comfortable taking refi applications from homeowners they’ve never met. On a technical level, there’s no reason your lender can’t process your application by phone, text, email, fax or overnight delivery, says Marty Qualls, who makes mortgages for several large banks.

“But you’ll have a lot more credibility with your lender if you go into his office,” says Qualls, who’s been in the mortgage business since 1992.

Meeting face-to-face is an especially good idea for borrowers who anticipate special challenges to loan approval. Such applicants include the self-employed, those with credit blemishes and those with relatively limited assets -- like small savings accounts.

Qualls acknowledges that many lenders favor the efficiency of handling nearly all their business remotely. Still, he says they often give preferential treatment to those who take the time to visit their office.

“An in-person application could even mean you get a slightly better mortgage rate,” he says.

-- Reply promptly to your lender’s request for documents.

Dale Robyn Siegel, an attorney and mortgage broker, says that compared with the pre-recessionary period, mortgage officers must now work more diligently than before to assemble the files they need to meet the exacting requirements of their underwriters (who have the final say on mortgage approval). Hence, they’re grateful to applicants who help them obtain documents without nagging.

“Good preparation is a big plus,” says Siegel, author of “The New Rules for Mortgages.”

Ideal loan applicants arrive at their initial appointment with all the primary documents they’ll need -- including recent pay stubs, W-2s and bank statements.

Mortgage officers are also pleased when loan applicants review their credit reports in advance of applying. Under federal law, you're entitled each year to one free credit report from the three large credit bureaus: Equifax, Experian and TransUnion. Just go to this website:

You may also want to access your credit scores. Such scores -- which draw on data from the credit bureaus--provide lenders with a quantitative measure of a person's credit risk. Most lenders use FICO scores, pioneered by the Fair Isaac Corp, though other rival scores are also now in use.

Usually you need to pay a fee to obtain your credit scores. One approach is to buy these through the Fair Isaac website: You can also receive credit scores through the credit bureaus. FICO scores range from 300 to 850.

-- Remain in close touch with your lender until the deal is done.

Given recent problems with credit that have exposed record numbers of consumers to potential identity theft, some refi applicants are now facing more complications than before to get loan approval.

Davis says lenders appreciate applicants who reply promptly to their requests for information and communicate often while their applications are under review.

“Whether you stay in touch by text, phone or email, connecting with your lender nearly every day is a great idea,” he says.

(To contact Ellen James Martin, email her at