How to Estimate Your Loan Amount on a Cash-Out Refinance

Private Money Loans

Have you ever filled out a mortgage application and didn’t know exactly what number you should put into the Loan Amount box?

If you have done a cash-out refinance in the past, perhaps you’ve been surprised to find out that you were not getting as much cash back as you initially thought.

Calculating a loan amount is pretty straight-forward on a purchase transaction, but a refinance loan can be pretty tricky – especially on a cash-out refinance.

To help you get a visual picture of how a refinance worksheet works, I’ve provided a sample below of an Estimated Closing Statement. This is in the format that many escrow companies use, so it’s easy to read and follow along.

Think of the Estimated Closing Statement as a budget worksheet, or in simple terms, a checking account. Money goes in, expenses go out, and you end up with the money left over (if any).

This statement below is an example of a cash out refinance to pay off the existing mortgage loans, personal debts, and get $20,000 cash back when all is said and done.

 

ESTIMATED CLOSING STATEMENT

(Sample)

MORTGAGE PAYOFFS

First Mortgage Loan ……………………………………. $150,000

Second Mortgage or Equity Line ……………………. $35,000                                                                                             

NEW LOAN CHARGES

Loan Origination Fee 3.5% …………………………. $8,575

Underwriting Fee ………………………………………… $895

Processing & Document Preparation …………….. $695

Appraisal Fee (Paid to a third party) ……………… $400

TITLE & ESCROW CHARGES

Escrow Fee ……………………………………………….. $400

Title Insurance …………………………………………… $650

Notary & other fees ……………………………………. $200

MISC. CHARGES

Current installment of property taxes ……………. $2,000
(Paid to your county tax collector)

Hazard Insurance ……………………………………….. $750
(Paid to your insurance carrier)

Delinquent property taxes …………………………… $4,000

Pay off car loan …………………………………………. $8,500

Pay off student loan …………………………………… $13,000

Additional Cash-Out ………………………………….. $20,000

Total                            $245,065

Should You Round Up or Down?

Based on the estimated charges above, your estimated new loan amount would need to be about $245,000.

This amount includes your $20,000 cash out.

If any charges are higher (greater) than you expected, it would mean that your Net Proceeds (cash-back) would very likely be less than $20,000.

In the early stages of getting pre-qualified, it would be a good idea to round up to a $250,000 loan amount. This would give you a $5,000 cushion for any unexpected costs and payoff amounts.

As a general tip, it’s always better to start with a higher loan amount and then work your way down rather than underestimating your figures and having to ask for a bigger loan amount later in the process.

Once you get more accurate fees for the payoff of the existing loans and title charges, you can adjust your loan amount as needed.

The Vicious Cycle: This is Where it Gets Tricky…

Your Origination Fee is generally set as a percentage (%) of your total loan amount. When you change your loan amount, your origination fee also changes. Therefore, one number is dependent on the other in calculating the new loan amount.

It’s a loop.

You need a loan amount to estimate your Origination Fee. And you need to know the dollar amount of the Origination Fee in order to estimate the total fees and new loan amount.

That’s why it’s good to use round numbers and estimate a little on the higher side for each fee when you’re trying to get pre-qualified for your refinance.

An experienced mortgage professional should be able to help you calculate your estimated loan amount. Brokers and lenders have advanced loan calculators to make this an easier process for you.


 

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