ASK THE EXPERT: We are wondering — is it possible to refinance our home and take money out of it?

We really need to replace the flooring and we think this could be the way.

It’s absolutely possible and this kind of loan is called cash-out refinance. Many people are doing just that.

In the second quarter of 2021, U.S. homeowners withdrew $63 billion in equity from their homes in more than 1.1 million cash-out refinances the largest quarterly volume since mid-2007.

A cash-out refinance lets you take some of your equity out of your home and get a new mortgage. Right now, if you’ve had your mortgage for a while, you might also be able to get a lower interest rate, although cash-out rates are usually slightly higher than traditional mortgages.

Whether your lender will do a cash-out refinances depends on your credit profile and how much you want to take out. It is possible to take out up to 80 percent of your home equity.

Suppose your home is worth $350,000. Your current mortgage balance is $250,000. If you need $30,000, you can refinance your loan for $280,000 and take the $30,000.

The funds you take out can be used for any purpose but most people spend the money on something that will improve their home or consolidate higher-interest debt.

To do a cash-out refinance, you must:

– Have more than 20 percent equity in your home.

– Get a new home appraisal to verify the home value.

– Credit score of at least 620.

– Loan-to-Value Score of 80 percent or less.

– Verification of income and employment.

With FHA and VA loans, the credit score or Loan-to-Value requirements might be slightly different.