Can I do a cash out refinance while a home is undergoing significant renovation?

Question:

We bought our first home one year ago. It was a VA mortgage, 30-year fixed at 5% interest rate, and the house appraised for a $120,000. Since purchasing the house, we’ve made lots of improvements to the home, completely new central HVAC, replacing ducts and cold air returns, drywall painting, added a half bath, new plumbing throughout, and main bathroom remodel, brand new everything.

Currently, we’re working on converting a garage into a nice insulated living space. We want to do a cash out refinance, after reappraisal to reflect the additions and improvements to the home, and streamline our finances, and also pay for new hardwood flooring for the rest of the home and add new windows.

We’re seeing rates as low as 3.75% right now, and we’re wondering, should we wait to reappraise or should we take advantage of the low interest rates right now?

Answer:

If you have a garage that’s currently under construction, you’re definitely going to want to wait for that to be completed before ordering a new appraisal. You want the highest appraisal value possible in order to lower the loan to value (LTV) when you get your refi. A lower LTV improves the refi terms that you’ll qualify for. For example, since you’re looking for a cash out refi, the lower loan to value ratio will maximize the amount of cash you can pull out.

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