Borrowers take out mortgage loans primarily for one of two reasons- either to purchase a home or to refinance an existing property.

In refinancing an existing property, three categories of property are possible, all of which can be refinanced for cash out or rate/ term reductions.

These three categories are:

Primary Residence: This is where the borrower lives. They reside here the majority of the time. Obviously, the borrower can only have one primary residence. This is the most frequently seen refinancing category seen by lending companies.

Second Home: This can be a vacation home or a home for convenience. For instance, if a borrower wants to buy a beach or mountain home as a get-away spot for the family, it may qualify as a second home. It depends on the amount of time they will spend there and in what proximity it is to their primary residence. A home of convenience would be a home that parents buy close to their children while the kids are in college, or something similar to that. In any case, a second home cannot be an income-generating property. The borrower cannot rent it out to a tenant.

Investment Property: This is an income-generating property. They range from single family dwellings to duplexes to condos. It is a property owned by the borrower but rented out as an income-generating property.

There Are Two Categories of Refinancing:

Rate/Term Refinance: This is where the borrower is changing nothing more than the rate or term of his existing mortgage situation. Sometimes called “limited cash out” transactions, the borrower is only paying the existing first mortgage loan. In addition, they are able to roll the closing costs into the new loan and receive the lesser of $2000 or 2% of the loan amount back to them in the form of cash. They are not able to pay off credit cards or consolidate any other debt with this type of refinance.

Cash Out Refinance: With a cash out refinance, the borrower is able to pay off other debts like credit cards and second mortgages, receive cash in hand or do home improvements. There is no limit to the cash out the borrower can receive except as dictated by loan limits and lender guidelines. (There are some programs that lend as much as 125% of the LTV (Loan To Value)