There are homeowners these days who are either investors or wishes to start investing. However, some lack the fund to invest. The good news is since they have enough accumulated home equity, many are considering a home loan option to fund and make their investment dream a reality. But is it worth the risk?

Home Equity Loan Options

For homeowners who want to pull equity out of their homes, they can either apply for a Home Equity Line Of Credit or a Cash Out Refinance Loan. Whichever loan type you apply for, you can get a hot deal and receive a hefty amount of cash. But let’s focus on Cash Out Refinance Loan.

Pros of Using a Texas Cash Out to Refinance an Investment Property

In Texas, there are definitive advantages as well as drawbacks when using your equity to finance an investment property purchase.

  • You get to lock in a loan with very low-interest rates since most lenders only have about 4% interest rate.
  • The LTV or Loan-To-Value amount you can get out of a Texas Cash Out will depend on your lender, but some offers up to 75% LTV. This only means if you get an LTV of 75%, you can receive 75% worth of your total home equity
  • As long as you’re financially stable meaning you have a steady flow of income, a Texas cash out refinance investment property is a low-risk loan since you have what it takes to pay your debt regularly.
  • If you’re successful with your investment venture, you can get an average annual return of at least 10% out of the investment where you put your equity on for the next 30 years or so.
  • At the end of the term, you did not only put your equity into good use, but you’re also able to pay off your texas cash out refinance loan.

Good Read: What is a Loan to Value Ratio and How to Calculate It

The Drawbacks of Using a Texas Cash Out to Refinance an Investment Property

  • The closing costs and other fees come with the new mortgage
  • You’ll need to go through a whole new application process just to get approved for a Texas Cash Out
  • Since you’re investing using money that is 100% borrowed, you will have magnified losses, and your home is at risk.

Like in any other mortgage programs, one must weigh in the pros and cons before using your equity to buy more real estate. It is also worth noting that with all the advantages and drawbacks mentioned, it is safe to say that a Texas Cash Out is best suited for the following types of investors

  • One who has the goal of purchasing, renovating and fixing an investment property
  • One who plans on buying a long-term rental property
  • One looking forward to restoring an existing investment property
  • One who wants to purchase a property by using the cash out refinance loan to pay the down payment or pay it in cash.

Homeowners should remember that you’ll need to get approved by your lender before you can take advantage of a Cash Out Refinance Loan. You’ll need to have the minimum credit score required by your lender, enough income to pay for your new mortgage and enough equity to qualify. It would be best to talk to a competent mortgage broker for you to get the best deals and advice when it comes to your new mortgage plans.